Is it a mistake to use Inventory Parts and Inventory Assemblies if we really don't want to track inventory??

capitolbedding · ‎December 10, 2018

We are a small mattress manufacturer, and have used QuickBooks Premiere Manufacturing and Wholesale for the past 17 years, but ONLY to create invoices. We want to begin using QuickBooks to actually run our entire business, and are trying to figure out how best to do this.

Our goal at first was to enter all bills, checks, etc for all of 2017 in order to be ready on Jan. 1, 2018. However when our item list was created originally all of our mattresses (that we manufacture) were set up as Inventory Assemblies. The problem is we never utilized Inventory Parts, and therefore never entered a Bill of Materials for any of the mattresses (assemblies).

If we continue to try using QuickBooks this way (empty Bill of Materials) will that cause any issues with accounting and/or reporting??

Ideally we would track all of our components (foam, fabric, steel, etc) as Inventory Parts and actually properly build each mattress as an Inventory Assembly... but the problem is our item list is over 1,000 items and we simply don't have the resources to put this all together... plus we really don't care to track inventory! Our mattresses are made-to-order and ship within a day, so tracking inventory really isn't necessary for us.

So... would it make the most sense to create a new company file, turn off inventory completely, and create all of our mattresses as Non-Inventory Parts?? Or are we ok continuing with our current setup with Inventory Assemblies, but they have empty BOM's and we don't care about inventory levels at all?? (this would be great as we wouldn't have to redo our item list, or create a new company file)

Any insight into this would be GREATLY appreciated!!

Thank you!

Rustler · ‎December 10, 2018

You created inventory assemblies, but you never entered a BOM, edit the assembly item and insure the listing area of parts to be used is blank - is it?

Have you been selling the assembly item?

After 17 years that file is going to be hard to fix depending on exactly what is wrong, and fixing it may impact on previous IRS returns, which might require amended returns.

If it was me I would continue as you have been this year, and use the rest of this year to set up a new company file.

As far as inventory and making your product, I would use the periodic inventory method and not mess with QB inventory at all. QB inventory does not deal with scrap or left overs at all in an assembly item

Use a service item to sell the various models of product you make

Using periodic inventory will require you to keep a listing outside of QB of product and model assembled that are on hand, but once you get a system set up it should be ok

---------
There are two ways to do periodic inventory, choose one and stick with it, you can not mix and match

1. (my preference) Create an asset account called purchases and post all purchases of item for resale to that account. Periodically, weekly, monthly, etc value the inventory on hand, subtract that value from the amount shown in the purchases account and do a journal entry for the answer to the subtraction
debit COGS for that value
credit purchases for that value

OR

2. Post all purchases to COGS. Periodically, but at least at the end of the year, you value the inventory on hand and do a journal entry.
debit the asset purchases account for that value
credit COGS for that value

Print the P&L
then reverse the journal entry
debit COGS for that same value
credit the asset purchases account for that value

This last journal entry, moves the value of what was on hand at the end of year back to COGS so the cost will be counted against the new year sales.

View solution in original post

Rustler · ‎December 10, 2018

You created inventory assemblies, but you never entered a BOM, edit the assembly item and insure the listing area of parts to be used is blank - is it?

Have you been selling the assembly item?

After 17 years that file is going to be hard to fix depending on exactly what is wrong, and fixing it may impact on previous IRS returns, which might require amended returns.

If it was me I would continue as you have been this year, and use the rest of this year to set up a new company file.

As far as inventory and making your product, I would use the periodic inventory method and not mess with QB inventory at all. QB inventory does not deal with scrap or left overs at all in an assembly item

Use a service item to sell the various models of product you make

Using periodic inventory will require you to keep a listing outside of QB of product and model assembled that are on hand, but once you get a system set up it should be ok

---------
There are two ways to do periodic inventory, choose one and stick with it, you can not mix and match

1. (my preference) Create an asset account called purchases and post all purchases of item for resale to that account. Periodically, weekly, monthly, etc value the inventory on hand, subtract that value from the amount shown in the purchases account and do a journal entry for the answer to the subtraction
debit COGS for that value
credit purchases for that value

OR

2. Post all purchases to COGS. Periodically, but at least at the end of the year, you value the inventory on hand and do a journal entry.
debit the asset purchases account for that value
credit COGS for that value

Print the P&L
then reverse the journal entry
debit COGS for that same value
credit the asset purchases account for that value

This last journal entry, moves the value of what was on hand at the end of year back to COGS so the cost will be counted against the new year sales.

capitolbedding · ‎December 10, 2018

Thanks for the info! Yes, all BOM's are empty. We have ONLY used QuickBooks for creating invoices, nothing more. All accounting was done by hand elsewhere, so this has no effect on previous IRS returns, etc as they were done by hand.

Again, for inventory... we really don't have any finished goods inventory. We manufacture mattresses that go out the door within 2 days. Quantity on hand for any given day is minimal. The only "inventory" we have are components (foam, wood, steel, fabric, etc) and we do periodic inventory counts to keep the purchases account accurate.

So for the mattresses we manufacture, you recommend using a Service Item instead of a Non-Inventory Part?? (assuming of course we turn off inventory in QB as well) Is there a preference / advantage for using Service Item for this type of thing?

capitolbedding · ‎December 10, 2018

I spoke with QuickBooks on the phone and they recommended using Non-Inventory Part for our mattresses if we turn inventory off. So is there a compelling reason to use Service Item instead?

I'm not trying to start an argument with anyone... just hoping gather info and do this right the first time!

Thanks so much for the assistance!

Rustler · ‎December 10, 2018

A service item by default posts to income. And service items are at the top of the listing makes them easier to find using a drop down list on an invoice

a non inventory item by default posts to expense, you have to check mark it on the item screen to open it up so you can use it to post income. Non inventory is great for things you buy and you sell since it can be used for both when you set it up that way.

you can use either, just be consistent

Rustler · ‎December 10, 2018

That's not true. There is no Default. The assumption is that there are things you buy or sell or buy and sell; but any item is linkable to nearly any account.

It is true

Default = means the way it is set up to start with when you create a NEW item.

Sure you can modify it - modify is not an attribute for default.

Service asks for income, non inventory asks for expense - no one said you can not select only those kinds of accounts

Noninventory for Materials goods.
Other Charge Item Type for Freight or Restocking Fees.

Yet you just said any account can be used on any item, so there is no set use for any item - those are your definitions

qbteachmt · ‎December 10, 2018

"We have ONLY used QuickBooks for creating invoices, nothing more."

Then, I would treat this as a Transition task, as if you are New to QB. Start a New Data File.

"I spoke with QuickBooks on the phone and they recommended using Non-Inventory Part for our mattresses if we turn inventory off. So is there a compelling reason to use Service Item instead?"

Use Noninventory for Materials.

"A service item by default posts to income."

That's not true. There is no Default. The assumption is that there are things you buy or sell or buy and sell; but any item is linkable to nearly any account.

The Reason to use different Item Types is for Better Reporting.

Service Items for labor or design or other intangibles.

Noninventory for Materials goods.

Other Charge Item Type for Freight or Restocking Fees.

Then, your Reporting gives you Segregations.

Examples are attached.

MBS3 · ‎October 16, 2019

Hi Rustler,

I see you are very knowledgeable in QB. For material items, such as paint that is bought to provide a service (we buy paint to do paint jobs on cars), we categorize it as non-inventory. However, we don't invoice for it because those materials can be used for multiple jobs. We just restock when we're running low. Also, we don't really want to use QB to track it (as of right now). But also, we don't want to mess up our reports. Would we do a journal entry as well as you had stated? If so, could you please provide an example. Thank you so much for your help.

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Is it a mistake to use Inventory Parts and Inventory Assemblies if we really don't want to track inventory??