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Manufacturing Inventory: do I need to use the inventory building?

I am hoping to find help with the inventory.  This is what I've been doing for the past year:

We purchase raw materials to make and sell a finished product.  When I purchase the raw materials (screws, wires, etc.), I use the "write check" function and keep the receipts in a file.  In writing checks, I've been using the "expense" tab and NOT the "items" tab, and it is all recorded in the COGS account.

I've entered the finished product items under "items list".  I did put the cost of each item underneath the purchase information (though I'm not sure if I was supposed to do that) and the sales price underneath the sales information.

Then, when we sell something, I either create an invoice (selling to a store who will resell it to someone else) or a sales receipt.

So of course I ended up at the end of the year with a lot of negative inventory and the "inventory asset account" with a huge negative dollar amount (it was zero before I had started entering the costs of the finished products).  I knew it was happening, but thought my accountant could help me figure out how to ignore it somehow, because we don't keep track of inventory.

I've been trying to figure this out for 2 days by googling.  I called quickbooks support and they helped me to enter an adjustment (though I honestly don't remember how we did that).  Their suggestion moving forward is for me to start using this assembly feature and include all of the costs of the parts needed to make products.  I get the general idea of that.

But this really complicates things for me.  It seems like it would be easy to enter 6 screws and one battery, etc.  But some of the parts we use are things like paint and wires.  For example, if I buy a jar of paint, I don't know how many applications are in it.

So I am wondering if it is completely necessary to do it this way.  Can't I just call my finished product a non-inventory item?  The guy on the phone said I wouldn't be able to change any of my inventory items to non-inventory items, but I could create new items that are non-inventory and start using them.

I would really prefer to do it that way.  We don't keep any inventory on hand, just the raw materials.  Then create the finished product as needed.  I don't have a lot of computer or accounting knowledge.  So I don't have a good understanding of what is happening when I am putting things into different accounts.

Thanks in advance for any help.

Solved
Best answer 12-10-2018

Accepted Solutions
Established Community Backer ***

"We purchase raw materials to make and sell a finished pr...

"We purchase raw materials to make and sell a finished product.  When I purchase the raw materials (screws, wires, etc.), I use the "write check" function and keep the receipts in a file.  In writing checks, I've been using the "expense" tab and NOT the "items" tab, and it is all recorded in the COGS account."

That is fine for Supplies used up quickly and not on hand of Significant time or value, and who the heck wants to count and manage Per Screw Smiley Happy

"I've entered the finished product items under "items list".  I did put the cost of each item underneath the purchase information (though I'm not sure if I was supposed to do that)"

Are these Assembly Items or Inventory Items or Noninventory Items?

That Cost field is pretty meaningless except for specific functions. First, Actual Cost will come from purchases, so that is only Notating a likely cost for your next purchase. If you are Building an Assembly, this won't be used at all.

"and the sales price underneath the sales information."

That is for Selling.

"Then, when we sell something, I either create an invoice (selling to a store who will resell it to someone else) or a sales receipt."

Yes, the depends on the Payment = the same date as the sale, or Later.

"So of course I ended up at the end of the year with a lot of negative inventory"

That is always a problem; you cannot sell what you don't have.

"and the "inventory asset account" with a huge negative dollar amount (it was zero before I had started entering the costs of the finished products).  I knew it was happening, but thought my accountant could help me figure out how to ignore it somehow, because we don't keep track of inventory."

If you don't "keep track" of inventory, Stop Selling using Inventory Item Names. That is Always an error. You cannot sell what you never put Into stock in the first place.

Do you Prebuild and hold on hand, or only assemble because there is an Order? You don't Have to use the inventory functions; you HAVE To use QB correctly to meet your needs.

"I've been trying to figure this out for 2 days by googling.  I called quickbooks support and they helped me to enter an adjustment (though I honestly don't remember how we did that)."

That likely was an error.

"Their suggestion moving forward is for me to start using this assembly feature and include all of the costs of the parts needed to make products.  I get the general idea of that."

Only if that Applies to your Process.

Using Inventory items = Perpetual Inventory. You also can run Periodic Inventory to get proper accounting. You can do some of each: Supplies are handled as Periodic and Significant Items are handled as Inventory = Perpetual, by name, stocked and counted and managed, and then used or Sold = relieved from Stock on hand.

"But this really complicates things for me.  It seems like it would be easy to enter 6 screws and one battery, etc"

It is like this: If the IRS walks into the building, do you have Stuff that just came in and is going out quickly? DO you have $300 of stuff on hand, or $3million? The concept is called "The Matching Principle." You cannot Expense $3million of stuff still on hand, and not sold until over the next year, for instance.

"But some of the parts we use are things like paint and wires.  For example, if I buy a jar of paint, I don't know how many applications are in it."

Again, you can and should separate out the concepts of Significant, Timeliness, Import, and Usefulness.

"So I am wondering if it is completely necessary to do it this way."

"Completely" doesn't apply; you use the different tools available to meet your needs.

"Can't I just call my finished product a non-inventory item?"

We don't know, yet. Do you only Create because you have an order in had? Do you only Order the Stuff to make it, because you have a customer order = it is pretty much Ordered and Created to the Sales in hand already? Or, perhaps you build furniture and have a showroom, and all the stuff is built and in stock in the back, for Carry Out.

See the difference?

"The guy on the phone said I wouldn't be able to change any of my inventory items to non-inventory items, but I could create new items that are non-inventory and start using them."

Well, you would Edit your transactions to remove the use of Inventory, if you don't intend to fix that you sold things Never on hand. You cannot leave that as negative.

Making just one Adjustment (as you stated Intuit helped) is not enough to resolve this sort of error.

"I would really prefer to do it that way.  We don't keep any inventory on hand, just the raw materials."

But that still has to meet the evaluations for "value and timeliness" for Being on hand. Raw Materials are different than Supplies, Screws and glue and paint as Supplies. Raw Materials can be $5,000 ingots or $500 rolls of fabric. That would be Inventory Asset but can be managed Generically, using Periodic Inventory methods and not Perpetual = Not using Inventory Item Names in QB.

"Then create the finished product as needed."

If you only Create because you already have a sale, that is not even "assembly" or "build." Build Assembly is useful to show you just completed 20 Sofas and have them in stock ready to go, and used up a lot of raw materials and specific things such as # of Legs, Yards of Fabric, etc.

"I don't have a lot of computer or accounting knowledge.  So I don't have a good understanding of what is happening when I am putting things into different accounts."

This is not something to Google, either. You have a bit of a mess in the accounting. You should get some help with this, and no offense, but Intuit's Program support people cannot help you get the Accounting corrected or how to use the system Easily to best meet your needs.

3 Comments
Established Community Backer ***

"We purchase raw materials to make and sell a finished pr...

"We purchase raw materials to make and sell a finished product.  When I purchase the raw materials (screws, wires, etc.), I use the "write check" function and keep the receipts in a file.  In writing checks, I've been using the "expense" tab and NOT the "items" tab, and it is all recorded in the COGS account."

That is fine for Supplies used up quickly and not on hand of Significant time or value, and who the heck wants to count and manage Per Screw Smiley Happy

"I've entered the finished product items under "items list".  I did put the cost of each item underneath the purchase information (though I'm not sure if I was supposed to do that)"

Are these Assembly Items or Inventory Items or Noninventory Items?

That Cost field is pretty meaningless except for specific functions. First, Actual Cost will come from purchases, so that is only Notating a likely cost for your next purchase. If you are Building an Assembly, this won't be used at all.

"and the sales price underneath the sales information."

That is for Selling.

"Then, when we sell something, I either create an invoice (selling to a store who will resell it to someone else) or a sales receipt."

Yes, the depends on the Payment = the same date as the sale, or Later.

"So of course I ended up at the end of the year with a lot of negative inventory"

That is always a problem; you cannot sell what you don't have.

"and the "inventory asset account" with a huge negative dollar amount (it was zero before I had started entering the costs of the finished products).  I knew it was happening, but thought my accountant could help me figure out how to ignore it somehow, because we don't keep track of inventory."

If you don't "keep track" of inventory, Stop Selling using Inventory Item Names. That is Always an error. You cannot sell what you never put Into stock in the first place.

Do you Prebuild and hold on hand, or only assemble because there is an Order? You don't Have to use the inventory functions; you HAVE To use QB correctly to meet your needs.

"I've been trying to figure this out for 2 days by googling.  I called quickbooks support and they helped me to enter an adjustment (though I honestly don't remember how we did that)."

That likely was an error.

"Their suggestion moving forward is for me to start using this assembly feature and include all of the costs of the parts needed to make products.  I get the general idea of that."

Only if that Applies to your Process.

Using Inventory items = Perpetual Inventory. You also can run Periodic Inventory to get proper accounting. You can do some of each: Supplies are handled as Periodic and Significant Items are handled as Inventory = Perpetual, by name, stocked and counted and managed, and then used or Sold = relieved from Stock on hand.

"But this really complicates things for me.  It seems like it would be easy to enter 6 screws and one battery, etc"

It is like this: If the IRS walks into the building, do you have Stuff that just came in and is going out quickly? DO you have $300 of stuff on hand, or $3million? The concept is called "The Matching Principle." You cannot Expense $3million of stuff still on hand, and not sold until over the next year, for instance.

"But some of the parts we use are things like paint and wires.  For example, if I buy a jar of paint, I don't know how many applications are in it."

Again, you can and should separate out the concepts of Significant, Timeliness, Import, and Usefulness.

"So I am wondering if it is completely necessary to do it this way."

"Completely" doesn't apply; you use the different tools available to meet your needs.

"Can't I just call my finished product a non-inventory item?"

We don't know, yet. Do you only Create because you have an order in had? Do you only Order the Stuff to make it, because you have a customer order = it is pretty much Ordered and Created to the Sales in hand already? Or, perhaps you build furniture and have a showroom, and all the stuff is built and in stock in the back, for Carry Out.

See the difference?

"The guy on the phone said I wouldn't be able to change any of my inventory items to non-inventory items, but I could create new items that are non-inventory and start using them."

Well, you would Edit your transactions to remove the use of Inventory, if you don't intend to fix that you sold things Never on hand. You cannot leave that as negative.

Making just one Adjustment (as you stated Intuit helped) is not enough to resolve this sort of error.

"I would really prefer to do it that way.  We don't keep any inventory on hand, just the raw materials."

But that still has to meet the evaluations for "value and timeliness" for Being on hand. Raw Materials are different than Supplies, Screws and glue and paint as Supplies. Raw Materials can be $5,000 ingots or $500 rolls of fabric. That would be Inventory Asset but can be managed Generically, using Periodic Inventory methods and not Perpetual = Not using Inventory Item Names in QB.

"Then create the finished product as needed."

If you only Create because you already have a sale, that is not even "assembly" or "build." Build Assembly is useful to show you just completed 20 Sofas and have them in stock ready to go, and used up a lot of raw materials and specific things such as # of Legs, Yards of Fabric, etc.

"I don't have a lot of computer or accounting knowledge.  So I don't have a good understanding of what is happening when I am putting things into different accounts."

This is not something to Google, either. You have a bit of a mess in the accounting. You should get some help with this, and no offense, but Intuit's Program support people cannot help you get the Accounting corrected or how to use the system Easily to best meet your needs.

Active Member
Frequent Explorer **

Re: Manufacturing Inventory: do I need to use the inventory building?

If anyone is here from QBO then I'd have to recommend an app like Katana providing you're a manufacturer that's heavily reliant on the use of raw materials. It basically means you can track and convert your materials on a dedicated system, and then push your invoices/bills to your QBO account. So your inventory and manufacturing efforts will work on one app, while Quickbooks takes care of your accounts. Makes things a lot cleaner.