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In QuickBooks Pro 2010 Essential Training, author Bonnie Biafore shows how to most efficiently use this popular business accounting software to manage business finances. The course covers core QuickBooks features that business owners need to know, from recording typical bookkeeping transactions like bills and invoices, to reconciling accounts and managing company files. Exercise files accompany the course.
If you sell products, you can treat them as inventory or not. Inventory is what you call products that you keep in stock to resell to your customers. The way retail stores, wholesalers, and distributors do. This video starts with how money moves between accounts as you buy and sell Inventory. But you'll also learn how to create an inventory item. On the other hand if you purchase products specifically for work,you are doing for a customer, you don't need inventory. You'll learn how to create a non- inventory part item later in this chapter.
The money associated with inventory moves from account to account as you buy inventory, hold it in stock, and then sell it. All these moves are the reason why you have to tell QuickBooks so much about the inventory items you create. When you buy inventory, money, say $500, comes out of checking account to pay for the inventory. That's a credit in the checking account. The money you spent on inventory shows up in the inventory asset account, because you still own an asset worth $500.
This is a debit in the inventory asset account. Then when you sell inventory, an income account gets a credit for the amount you sold the inventory for, say $1000. The customer owes you money, so your accounts receivable account gets a debit for the sell amount, also $1000. Because you've sold some of the inventory, you have to reduce the amount in your inventory asset account. So you credit that account for the cost of the inventory. That's the $500 you paid for it in this example.
That brings the balance in the inventory account to zero, because you've sold all your inventory. You have to take the cost of the sold inventory into account, so you debit the cost of goods sold account for the value of the inventory you sold, also $500. To create an inventory item and tell QuickBooks what it needs to know, you start in the Item List window. Click Item and choose New. In the New Item dialog box, click Inventory Part in the Type dropdown list.
In the Item Name/Number box, type a name for the inventory item. If you keep a lot of products in stock, numbers or codes take fewer characters to identify a product then spelled out names. You can use parent items and sub- items to keep your item list organized. To make an item a sub-item, turn on this Subitem of checkbox, and then choose the parent item. You can choose Add New to add a new parent. In this case, I'll create a new parent for inventory items.
I don't have to fill out anything, but the Item Name/Number box and an Income Account. If you create purchase orders for inventory, you can fill in the Manufacturer's Part Number box to help the vendor identify the product you're ordering. The Description on Purchase Transactions box is where you type the description you want to appear on purchase orders or bills. This lets you describe the product in terms the vendor uses. In the Description on Sales Transaction box, you can type a more customer friendly description, which appears on invoices or sales receipts that your customers see.
QuickBooks automatically copies what you type in the Description on Purchase Transactions into the Description on Sales Transactions. The Cost box is how much you pay for one of the product. A single six panel interior door, a pound of nails, a gallon of paint, or one door lock in this case. Even if you buy inventory in larger quantities, you still have to fill in the cost with the amount you pay for one unit. QuickBooks compares the Cost field and the Sales Price field to figure out your profit on each unit.
The Cost of Goods Sold Account is the account that tracks the product cost when you sell the product. QuickBooks calculates gross profit on products by subtracting the cost of goods sold from the income earned. If you don't have a cost of goods sold account, QuickBooks creates one when you create your first inventory item. You don't have to fill in the Preferred Vendor. This tells QuickBooks the vendor to fill in when you create a purchase order for this item. The Sales Price field is how much you charge for one unit of the product.
That's the same unit you used in the cost field. If you collect sales tax, choose Tax in the Tax Code dropdown if the product is taxable. The Income Account is the account you used to track the income from selling one of these items, Product Income in this example. When you purchase inventory, those products sitting in Inventory are an asset that you own. The asset account keeps track of the value of your inventory until you sell it. In this case, it's an Inventory Asset.
If you want to reorder or reminder when you're running low, fill in the Reorder Point box with a number that you want to trigger the reminder. A lower reorder point works when your vendor ship products quickly, plus you have less money tied up in inventory. When you create a new inventory item, you can fill in the On Hand field to tell QuickBooks how many you already have in stock. The Total Value field tells QuickBooks how much the ones you have on hand are worth.
QuickBooks adds that total value to your inventory asset account. The As of field tells QuickBooks the date for the addition of the inventory to your inventory asset account. If you want to create another item, click Next. To save this item and close the dialog box, click OK. After you've told QuickBooks everything about the inventory item, you can add it to a purchase order, bill, invoice or sales receipt, and QuickBooks can keep track of the money every step of the way.
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