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Frequent Explorer **

Beginning and Ending Inventory

Hello, So I have been doing some reading online about entering beginning and ending inventory in quickbooks. But I just want to make sure i am doing this correctly. Example) Create a Journal Entry for 12/31/16 for Ending Inventory: Debit Inventory Asset Credit COGS Create a Journal Entry for 12/31/17 for Beginning Inventory: Debit COGS Credit Inventory Asset

Am I doing this correctly? I just want to make sure my profit loss statement and balance sheet is done correctly.
5 Comments
QuickBooks Team

Re: Beginning and Ending Inventory

Hello lynnLorretta,

 

Welcome to the Community. Allow me to help provide clarification about the inventory balances in QuickBooks Desktop.

 

The beginning and ending balance calculation is automatic and will depend on the created transactions within QuickBooks. Please also note that creating a bill will increase the inventory, and an invoice decreases them.

 

If you want to make adjustments, you may need to run inventory reports and manually check which transactions need corrections. Unlike the traditional accounting process, the QuickBooks program determines the balance of the accounts through the stored data.

 

When using Journal Entry to make changes, the accounts affected will depend on what you're trying to achieve. If you're unsure what to debit and credit, I suggest seeking expert advice from an accountant.

 

To learn more how QuickBooks handles inventory, I'm adding the article I recommend on this:

 

Understand Inventory Assets and COGS tracking.

 

I'm always available anytime you have questions or concerns about Inventory in QuickBooks Desktop. The Community will be eyeing out on your response.

Established Community Backer ***

Re: Beginning and Ending Inventory


@lynnLorretta wrote:

Hello, So I have been doing some reading online about entering beginning and ending inventory in quickbooks. But I just want to make sure i am doing this correctly. Example) Create a Journal Entry for 12/31/16 for Ending Inventory: Debit Inventory Asset Credit COGS Create a Journal Entry for 12/31/17 for Beginning Inventory: Debit COGS Credit Inventory Asset

Am I doing this correctly? I just want to make sure my profit loss statement and balance sheet is done correctly.

If you are using inventory items, then NO, that is not correct.  never use a journal entry for inventory

 

IF, if you are NOT using inventory items then you are doing the periodic inventory system.

those entries you show are just one part of periodic inventory

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.

 

Highlighted
Established Community Backer ***

Re: Beginning and Ending Inventory

I think you imagining an income statement that uses the format: Opening Inv + Purchases = Available for Sale - Closing Inv = COGS. QB does not support that style of presentation. Instead you simply get Sales - CoGs = GrossProfit styple of presentation.
No JEs are needed.
Frequent Explorer **

Re: Beginning and Ending Inventory

@Rustler Yes, we are doing periodic inventory. Thank you for answering my question. I really appreciate it. I did have another question for you that i was hoping you would be able to answer for me when you get a chance.. I just want to make sure I am doing this correctly when it comes to member draws. I wrote myself a check for the amount that i wanted to withdraw from my business and the account that i chose was member draw. However, now my member draw account has a negative number. When I pull up the balance sheet report for example 12/31/16, this is what it is reporting: Bank Account-5000 Inventory Asset-10,000 Total Assets-15000 Member Equity-1000 Member Draw- $-36,000 Net Income-50,000 Total Equity-15000 And then when i pull up the balance sheet for ex) 12/31/17 Bank Account-20000 Inventory Asset-20000 total Assets-40000 Member Equity-1000 Member Draw- $-86000 Retained Earnings-50,000 Net Income-75000 Total Equity-40000 I am just wondering if the retained earnings and the member draw account is correct. Will the retained earnings account continue to grow as the net income is posted to it for each year? And If i need to do a journal entry to zero out the member draw account on the 1st of the following year?
Established Community Backer ***

Re: Beginning and Ending Inventory


@lynnLorretta wrote:
@Rustler Yes, we are doing periodic inventory. Thank you for answering my question. I really appreciate it. I did have another question for you that i was hoping you would be able to answer for me when you get a chance.. I just want to make sure I am doing this correctly when it comes to member draws. I wrote myself a check for the amount that i wanted to withdraw from my business and the account that i chose was member draw. However, now my member draw account has a negative number. When I pull up the balance sheet report for example 12/31/16, this is what it is reporting: Bank Account-5000 Inventory Asset-10,000 Total Assets-15000 Member Equity-1000 Member Draw- $-36,000 Net Income-50,000 Total Equity-15000 And then when i pull up the balance sheet for ex) 12/31/17 Bank Account-20000 Inventory Asset-20000 total Assets-40000 Member Equity-1000 Member Draw- $-86000 Retained Earnings-50,000 Net Income-75000 Total Equity-40000 I am just wondering if the retained earnings and the member draw account is correct. Will the retained earnings account continue to grow as the net income is posted to it for each year? And If i need to do a journal entry to zero out the member draw account on the 1st of the following year?

Yes, usually at the beginning of the new year after any income tax adjustments are made, you roll up the equity and RE accounts with journal entries

 

debit equity investment, credit equity, for the amount in the investment account

debit equity, credit drawing for the amount in the drawing account

debit RE, credit equity for the amount in the RE account (if a partnership then credit each partners equity account for their share.

 

For a company taxed as a sole proprietor (schedule C) or partnership (form 1065), I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)

[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here