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Frequent Explorer *

Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

According to the following information (in quotes) I should not have to make Journal Entries to decrease my inventory and increase my Cost of Goods Sold. QuickBooks should automatically do this for me in addition to affecting my income account:

 

"Go to Lists > Item List, click the Item button, select New, and select Inventory Part. Here you can setup all three accounts involved – your cost of goods sold account, your revenue account and your inventory asset account. When you use the item on a purchase transaction (enter bills, write checks, enter credit card charges, etc.), it will automatically increase inventory. When you use the item on a sales transaction (create invoice, enter sales receipt, etc.), it will not only increase income but also increase cost of goods sold and decrease inventory."

 

So the only part of the above that is actually happening is that when I make purchases of inventory materials, that expense DOES increase my inventory balance. However, when I bill my customers for the inventory materials, it DOES NOT effect the COGS or the Inventory. It only effects income. So, I am having to make Journal Entries to  post these transactions to the appropriate accounts, which is a huge pain. Also, I am not seeing the cost of the inventory materials reflected in my job costing reports until I make Journal Entries. Can anyone advise me what the problem might be?

16 Comments
QuickBooks Team

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my C...

I’m glad to see you in the QuickBooks Community, SummersElectricLLC.


Thanks for providing such detailed information for it gives me a better picture on what happened. I’m here to clarify why billing your customer for the materials doesn’t have an effect to COGS or the inventory.


Yes, you’re correct that once you purchase an item it increases the inventory balance. You’ll have to enter the cost of the material so it will be reflected on the Inventory Asset and COGS once you bill the client for the materials.

 

For more information, feel free to read this article: Understand Inventory Assets and COGS tracking.

 

The information I provided will help track your inventory correctly.

 

Stay in touch if you have additional questions about tracking inventory in QuickBooks. I'm always around to answer them. Have a good one.

 

 

 

 

 

Established Community Backer ***

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

@SummersElectricLLC

 

@ Summer

Inventory and assembly items have three accounts
expense = COGS (default account best to not change it)
income = your sales income account
asset = inventory asset (default account best to not change it)

Then when you order inventory items, you must use the item tab and list the item, qty and total price, when you do that you do NOT use any accounts on the expense tab - are you doing it that way?

You said you have been using journal entries with inventory asset as the account, unfortunately that is a big problem now. In QB, when you use inventory items, you never use the inventory asset account in any transaction, journal entry, or adjustment.

Would you post a screen shot of a purchase showing the item tab.

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my C...

Thank you for responding to my question... when you said

"You’ll have to enter the cost of the material so it will be reflected on the Inventory Asset and COGS once you bill the client for the materials."

I'm not sure what you are referring to. When I invoice my customer for $20 and use the item "stock/inventory materials" which is tied to the "Inventory Asset" account, shouldn't that be all I need to do to show an increase of $20 to COGS and a decrease in inventory of $20?

QuickBooks Team

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my C...

Hello SummersElectricLLC,

 

I'm here to help provide some additional insight into entering the cost of materials in QuickBooks Desktop.

 

In addition to the information provided by my colleague @Rasa-LilaM, I'm attaching the steps below on how you can enter the item costs:

 

  1. Click the List tab at the top menu bar.
  2. Select the Item List.
  3. Double-click to open the item.
  4. Enter the amount in the field next to Cost (see screenshot below).

 

Please let me know if there's anything else I can do for you. The Community has your back.

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my C...

Oh, I see what you mean now. However, this does not work for me because the price is different every time.You see, we don't keep inventory in the traditional sense. When we buy a spool of wire for a job, whatever amount of footage of wire is left over after that job is assigned a dollar value and placed into inventory to be used at other jobs later. Also, we sometimes purchase wire nuts, screws, nails, etc. that we don't track the quantities of or try to track those small items individually, we just charge the purchase to inventory assets and then when they are used on a job, the owner assigns an estimated dollar value of those materials that were used from inventory on a particular job. So, when I invoice my customers for stock/inventory materials used, the dollar amounts are different on each job. I was under the impression that all I needed to do to show the decrease in the dollar value of  inventory  and the increase in COGS was to invoice my customer for the estimated value of those stock materials that were used on their job, since the item I put on the invoice is an inventory part. I verified that the inventory part "Stock/Inventory Materials" item is set up properly showing the correct asset account, COGS account, and income account. I just can't understand what I am doing wrong. I feel uncharacteristically stupid at the moment :-)

Also, the dollar value cost of the inventory materials does not show up in my job costing reports as an expense of the customer's job, which I think is a direct result of the fact that it is not posting from the invoice to COGS as it should. HELP?

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

I have been entering all stock materials purchased under the expense tab and charging them to the inventory asset account named Stock/Inventory Materials". Is that what I'm doing wrong?

Also you said that using Journal Entries in QB is a big problem. So, if I am to avoid JEs all together, then how am I to post items to inventory that are not direct purchases. For example, we buy a 1000ft spool of MC Cable for a specific job, but say we only use 900ft, then how would I add that left over 100ft to inventory to be used on a later job without making a JE?

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

I am posting screen shots to show how the item "Stock/Inventory Materials" is set up, as I believe I have it set up correctly. However, if you find that it is not correct, please let me know. 

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

Here is the asset account screenshot

Highlighted
Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

When I have posted purchases using the expense tab, it has always increased the value of my inventory asset account, so I never found any problem with that. However, I  have gone back and corrected an old purchase based on the information you have given, or at least my interpretation thereof. Please let me know if this looks right and I will go and change all of those purchases for the year 2018 before submitting my account's copy to our accountant.  But I'm wondering if correcting all of the purchases I made for inventory materials will cause QB to do the correct accounting now when invoicing my customers. I am not sure I understand how that will effect the invoicing part of the accounting.

Also, should I be posting job materials purchased for a specific job the same way under the items tab instead of the expense tab, as well?

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my C...

Oh, I see what you mean now. However, this does not work for me because the price is different every time. You see, we don't keep inventory in the traditional sense. When we buy a spool of wire for a job, whatever amount of footage of wire is left over after that job is assigned a dollar value and placed into inventory to be used at other jobs later. Also, we sometimes purchase wire nuts, screws, nails, etc. that we don't track the quantities of or try to track those small items individually, we just charge the purchase to inventory assets and then when they are used on a job, the owner assigns an estimated dollar value of those materials that were used from inventory on a particular job. So, when I invoice my customers for stock/inventory materials used, the dollar amounts are different on each job. I was under the impression that all I needed to do to show the decrease in the dollar value of  inventory  and the increase in COGS was to invoice my customer for the estimated value of those stock materials that were used on their job, since the item I put on the invoice is an inventory part. I verified that the inventory part "Stock/Inventory Materials" item is set up properly showing the correct asset account, COGS account, and income account. I just can't understand what I am doing wrong. I feel uncharacteristically stupid at the moment :-)

Also, the dollar value cost of the inventory materials does not show up in my job costing reports as an expense of the customer's job, which I think is a direct result of the fact that it is not posting from the invoice to COGS as it should. HELP?

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my C...

I might also add as a note to you that we never charge a mark-up on stock materials used, so the dollar value that I charge the customer is the exact dollar value that those materials are estimated to have cost the company.

Established Community Backer ***

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my C...

@SummersElectricLLC

 

You and I are covering your Error in depth in the other topic, where I explain you are using Inventory Item incorrectly and everything you described is Noninventory. Your initial setup of Expenses tab was wrong for providing Job reporting data; your change to Inventory also was not the Right Item Type to use.

 

Please see the other topic you asked and I answered, and let's keep to that, since that is already there:

https://quickbooks.intuit.com/community/Account-management/Job-profitability-detail-report-not-showi...

 

You use two sided Noninventory Items; leave the Cost and Rate (price) as 0. When you enter this into an actual purchase entry, you job track it as Billable to that job. When you do this, then using the Add Time & Costs, function, your Cost appears as the customer's Price.

 

Never use JE in QB for this. Not for Job tracking, not for Anything with names, not for AP, AR, no items can be listed here, not for Sales, Sales taxes, etc.

 

"For example, we buy a 1000ft spool of MC Cable for a specific job, but say we only use 900ft, then how would I add that left over 100ft to inventory to be used on a later job without making a JE?"

 

Only you know if that is inventory or not, based on the details I went into on your other topic. You seem to be treating Material as if that is Inventory. Products that are Specifically Names, are inventory. And Yes, you need to open the original Purchase and Split the entry into two lines:

Noninventory item "Materials" $900 job tracked for Smith

Same Noninventory item "materials $100 job track to Jones, or not Job Tracked at all.

 

That's why you have Multiple entry lines on purchase transactions.

 

And if you want to handle this as Period Inventory, I covered that in the other topic. Example:

You realize at Year end that the Not Job Tracked $100 still is on the shelf. You analyze all materials on hand and determine that $50,000 of Stuff posted into COGS from Purchases, still is on hand. You make One JE:

Debit Other Current Asset for "materials on hand" $50,000

Credit COGS for $50,000

 

Periodic Inventory = Rebalancing between those two, to reflect what still Is on hand and what is no longer on hand.

 

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

@Rustler   @qbteachmt

 

Hi guys,

You two have been most helpful for me in trying to get all of this straight. I have finally gotten a decent understanding of how I went wrong with my inventory asset items and am working to correct it. The one problem that persists for me is that I need a way to track the dollar value of the stock materials like mc cable, romex cable, screws, nails, wiring devices etc that we have on hand. I do not have a feasible way to track these items individually, as my boss just does not operate that way and the accountant has told us that all he needs to track is the estimated dollar value of what we have on hand and how that increases and decreases. 

So, I am seeking your help to understand how I can do this. I have been told repeatedly that QB should do this for me as I invoice my customers for stock materials used, but it isn't. I am attaching a copy of an invoice where I billed the customer and reports showing how it is not posting to the job at all unless and until I make a Journal Entry.

Are either of you able to set me straight and tell me how to do this without making Journal Entries, which I understand are not the thing to do?Invoice.png reports.png

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

@Rustler

 

Here is the screenshot of the purchase you asked for. I also show that this entry did increase the stock inventory asset account. Let me know if it is done correctly. Thanks!

Stock materials purchase.jpg

Established Community Backer ***

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

Never use JE in QB for anything where Names will be needed. And you cannot list Items there, so you just bypassed the Job reporting.

 

Here is what you asked: "I need a way to track the dollar value of the stock materials like mc cable, romex cable, screws, nails, wiring devices etc that we have on hand. I do not have a feasible way to track these items individually, as my boss just does not operate that way and the accountant has told us that all he needs to track is the estimated dollar value of what we have on hand and how that increases and decreases."

 

We already discussed you need to be using Two Sided Noninventory items. You need to be using them on the purchase and that is where you would Job Track anything bought directly for a job.

 

When you have generic stuff on hand that you need to track, your Accountant was describing Periodic Inventory.

 

Example: If I scan the stuff on hand and it seems to total about $500, my Two Sided item is fine posting on the left side as COGS. That remaining material is Minimal.

 

If I scan the stuff on hand and it seems to total about $50,000, that is a Problem if I put it into COGs already. Because it is not Sold. So, Periodically as monthly or quarterly, and at least at Year End, I need to reduce COGS to Other Current Asset generically. Not by Inventory Items. Just Value still on hand over the year end.

 

Period Inventory:

If everything I buy has a pretty quick turnaround and is used quickly, the two sided noninventory item links to COGS and to Sales. If it stays on hand a while and I always have some Significant value on the shelves and shop floor, then the two sided item linked to Other Current Asset for periodic management of the value of stuff nearly always still on hand.

 

And all you do is Rebalance between Other Current Asset and COGS, each time you scan what is on hand and its Cost to you. Other Current Asset = what is on the floor and in the shop at the time you did this, as periodically.

 

As for Job Tracking, there is no job tracking a JE. Since you cannot Relieve from stock for something not individually tracked as inventory, you need a Different method. We have lots of methods in QB for things like this, the one you want is called "$0 Bill."

 

Example:

 

Make a Vendor Name = Job Allocation

 

Enter Bill.

 

List on this bill the same two sided Noninventory item you use all the time (such as you already bought it as Hardware and you already bought it as Caulking), or a generic one that you name "Misc Materials Used" or even, both.

 

Now, on the Items tab...

List the item(s) that you would want to see Job Tracked, and put the Cost on them, and Billable or not for purposes of if you intend to select this for the sale or simply need to Allocate what got used (would be Not billable). Think of this as the Purchase Details for that job for stuff from on hand.

 

Now list the item(s) that you want to see Reduced or affected, with No Job Tracking and with the amounts Negative.

 

On either entry, you also get to use Quantity, if that helps in your reporting.

 

The Total on the Items tab, and the Total of the Bill, need to be $0. Hit Recalc, to see Amount fill in. That is because all of this is Offsetting:

 

What you originally bought generically, is removed by the negative generically which is why there is No Job Tracking the Negative.

 

What you want to Allocate to the job is the Positives. This creates the Job Tracking and reporting.

 

Remember that the reason this works, is that the item controls the flow of the data to the accounting. If you were to then use Ctl Y on that bill, you would see:

If the regular Noninventory items are linked to COGS and income, this purchase would Debit COGs and Credit AP. When you use it with negatives, you reversed the COGS and that is why you use Both a positive and a negative, to get a $0 bill. job Track only the things you need to track which is Not the negative.

 

And here's how you can use it another way:

 

You bought 80 rolls of roofing, custom order, job tracked, and ended up with a Canceled contract for that job. You charge that customer a restocking fee, but you are stuck with 80 rolls of Roofing, too. You originally Job Tracked that purchase. Now, you use the same $0 Bill method, like this:

 

Enter Bill

Vendor = Job Allocation

 

You put the same Original noninventory item purchased for the job as the Negative and Job track it.

 

You put the Item "purchased" next, that puts it On Hand, generically = No Job Tracking, as the Positive.

 

This Bill = $0. You just Unassigned that the original purchase, job tracked, is like a Return, because you Job Tracked that Negative here. You put it "on hand again" with no job tracking, that is the Positive line here.

 

Hope that helps.

Frequent Explorer *

Re: Invoicing my customers for inventory items is not decreasing my inventory and increasing my COGS as it should. Help?

@qbteachmt

Hi and thank you for your prompt response! By the way, when reading this post, please do not misinterpret my tone, as I realize that it may come across as argumentative and disrespectful. But I assure you that is not my intention. My intention is merely to explain my thinking and to seek to understand your statements. I appreciate and respect the fact that you clearly have a much greater understanding of QB than I do and I am truly seeking to learn from you. I honestly don't mean to seem like I am being difficult, but what you are describing seems so complicated to me. If it must be that way, then I will go through all of those steps, but the way I understood that QB would work seemed so simple.

I guess I am not understanding why I can't treat all of the miscellaneous materials on hand as one single inventory item and track it that way. If I can track inventory items individually, then why could I not track all of the items together, as though they were the same one item, being the only one item in my inventory?

Every time I enter a purchase for stock materials, I list the total cost on the items tab as "Stock/Inventory Materials" with no quantity specified, then QB increases my inventory asset account. Which is the desired outcome. (However, when selling the items, that is where I am not getting the desired outcome). That purchase of stock materials is not tracked to a specific job because obviously I don't know until it is used which jobs to track it to. This would be the same if I were a retail store selling multiple items that were tracked individually. I would take those items in, record the purchase and not track it to a customer until I sold the items. Then, when one of the items was sold it would be tracked to a particular customer and would show as a decrease in inventory and the income and COGS accounts would be correctly posted to, automatically by QB, as well, once I created the customer's invoice.

So if I am treating all miscellaneous materials on hand as one individual item and I am creating invoices to customers that show the sale of that one item with a dollar amount charged to the customer, but no quantity specified. Why would QB not treat that the same way? I just am failing to understand why those invoices to my customers are not decreasing the asset account by that amount and increasing the COGS account by that amount. It does debit accounts rec. and credit revenue, but it does not do the rest of the accounting that QB should automatically do for inventory items sold.

So ultimately, I guess I have two questions here, the first being, what is the problem with treating all of my misc. items as though they are one specific item, as long as my accountant and I both know what that actually represents? And the second question being, why is QB not doing the automatic accounting that I have been told it should do when items are sold from inventory? Is it because I am not specifying quantities sold?

Also in response to your statement that "As for Job Tracking, there is no job tracking a JE." I have found that the JE is actually the ONLY way that I CAN job track that cost, because QB is not tracking it from the sales invoice. Once I make the JE, then the cost shows up on the job costing reports for whichever job name I selected when making the JE. So, I am not sure what you mean when you say there is no job tracking a JE. Please see the photo below as it illustrates that the one and only "No item" included on that job costing report is the General Journal Entry that I made to reflect that decrease to inventory and increase to COGS, which in turn costed the value of the items used to that job.reports.png

Thank you for your patience and understanding with me!

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