QuickBooks Enterprise v20 Advanced Inventory Landed Costs

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Intuit recently released QuickBooks 2020 Desktop, and many QuickBooks Enterprise Users have already been notified about the availability of the initial release of the Enterprise Solutions v20 software. Additional notifications will occur as users annual subscription renewals arise.

Insightful Accountant was privy to various pre-release versions of QuickBooks Enterprise v20 during development and has had communications with Intuit personnel, including product managers and developers, to help you learn about the new products. This article takes a closer look at one of the features released as part of the QuickBooks Enterprise v20.

If case you haven't read my article summarizing the Desktop Products then the chart below, courtesy of Intuit, reflects which new features are available in which QuickBooks releases. Of course, I would encourage you to read 'My QuickBooks Desktop 2020 Summary article'.

Be certain to tune in for the September edition of QB Talks scheduled for 2 PM Eastern on September 18, 2019 to hear about QuickBooks 2020, there will be more information about that webinar outlined in a future article. You can register HERE.

Landed Costs

New to QuickBooks Enterprise v20 Advanced Inventory (Platinum Subscription holders) in both the U.S. and Canada (but not in the U.K., at this time), is another great feature that will improve the ability of inventory-centric businesses to more accurately determine and reflect their inventory costs and thus improve profitability. While Joe Woodard wrote a lengthy article years ago teaching QuickBooks users how they could apply the cost of freight to their actual item costs using a complex set of steps that few users ever followed. The new Landed Costs feature automates the process of allowing users to add the costs of shipping, freight, tariffs, import duties, insurance and other miscellaneous costs into their actual item costs to provide them with greater visibility into their true product costs.

Setting-up Landed Costs

As I mentioned above, this is an Advanced Inventory feature, so if you are not already using QuickBooks Enterprise Advanced Inventory you will have to activate it in Advanced Inventory Preferences, it is a new tab of its own. To find the preference setting go to the QuickBooks menu bar, then select Edit, choose Preferences, select Items & Inventory, then choose Company Preferences, now click the Advanced Inventory Settings button (as shown below).

When the Advanced Inventory Settings window opens, select the Landed Costs tab, and then click the Setup landed cost account button, this will open the Setup Landed cost wizard (shown in the illustration below). Intuit recommends using the default 'new' Other Current Assent Account called Landed Cost Account which will be created to hold your landed costs until they are allocated to your inventory items. Be certain to Save & Continue to move on to the next step of the process which is setting-up your Landed Cost items and mapping them to your Landed Cost account.

Setting-up Landed Cost Items

The Landed Cost wizard moves you to the Item set-up screen (as seen below) which is intended to allow you to Add Items and map them to your new Landed Cost account.

I must say that I really don't like this wizard window, I found it 'sluggish to use' and since it only wants to allow you map Items you already have in your Item list that are 'Other Charge' type items (regardless of the existing Accounts) I am not certain that I wouldn't simply use the Item List to enter Items and then map them to the new Landed Cost Account there. Anyway, here are my Landed Cost Items I went and created, and then returned to map to the Landed Cost Account.

So, if I go out and look at one of these items in the Item List, my Freight Item for example, I can see that my Expense Account is now the 'Landed Cost Account' (as seen at the top of the next page). That's OK if all my freight costs are truly 'landed costs', but what happens if they are not?

I can see a problem brewing. If I only have this one 'freight item' then all my freight costs are going to go to the Landed Cost (Other Current Asset) account rather than the previous COGS or Expense account I was using, and since those costs will never be applied to Inventory they will remain in the asset account balance. It appears that I am really going to need to have 2 freight accounts, one for Landed Cost Freight (probably LC Freight) and one for Non-landed Cost Freight (probably NLC Freight) in order to use this feature properly.  Now other costs, like 'Duties' and 'Customs Expedite' are almost always landed costs so I'm not worried about them, but there could be some others that I will need to differentiate accounts. Still the same, that's a relatively minor 'work around' in order to have this new feature do the majority of the costing to get the landed costs included in the inventory costs.

With our Landed Cost Account and Landed Cost Items set-up we are ready to handle our first bill for landed costs, so that we can then apply those costs to our first bill for inventory materials.

Handling a Bill for Landed Costs

When a Vendor Bill arrives for landed costs like freight, duties, or other costs that should be part of the overall cost of inventory items, you enter the Bill normally (as shown below) with the exception that you will now use the appropriate Landed Cost Items you set up (in the process above).

When you record these Vendor Bills you not only increase Accounts Payable, but you increase the Landed Costs Account Other Current asset account, as reflected for the above Vendor Bill in the Transaction Journal shown below.

Now that we have recorded our freight as a landed cost, it's time to apply it to the applicable inventory Vendor Bills.

Applying Landed Costs to Inventory Bills

When  you receive a Vendor's Bill for Inventory being to process it as you normally would, (as seen in the illustration below) after you verify all other information is correct, Save it, then click the new Calculate Landed Cost button highlighted in the red box in this illustration.

QuickBooks will initially display the new Calculate landed cost widow composed of two sections, the upper section is the Shipping & handling costs section, and the lower section is the Inventory and assembly items section. The upper section will be 'blank' when the window opens, and the lower section will show each of the line items of your Vendor Bill that you began the process with.

To locate Shipping & handling costs, click the Add bills button (shown below) at the bottom left of the Shipping and handling costs section.

The Shipping and handling bills window (shown below) opens to allow you to select bills for landed cost items held in the account your set up for landed costs, you may need to adjust the date range to find the specific bill(s) you are looking for (I personally would like to see an option for 'All' in the date range). Select the Bill (or Bills) you want to work with by checking the checkbox to the left of each bill and then click the Add Bill button at the bottom of the box.

[Commentary: The display here is a little limited, the Vendor name area is short and the Bill Number is also, while the Bill AMT and Unallocated Amt areas are too big, there is too much wasted space to the right of Due Date, better use of space needs to be made of in this display window by Intuit.]

QuickBooks has returned to the Calculate landed cost window, but your selected Shipping & handling bill now appears in the Shipping and handling cost (upper) section of the window (as shown below). There are now several decisions to make in order to allocate these landed costs to your Inventory Bill.

You first need to determine if your entire landed cost bill should be allocated to the inventory bill, or if only some portion of it should be allocated to it. This new Landed Cost feature allows you to do this simply by changing the amount in the AMT TO ALLOCATE field of any bill in the Shipping and handling costs section (highlighted in the Blue box in the illustration above). By default, the full amount is posted, but you simply change it to the amount you want to allocate.

[Commentary: it sure would have been nice if Intuit had given us the ability to use the 'math keys' (divide, multiply, add, subtract) in this field so we could have changed these numbers more easily if we needed to split the value among several different inventory bills.]

Next you must consider how you will 'Split' the Allocated Shipping & Handling Costs across the Inventory Items of your Vendor Bill. In my case, I only have one Item, even though it's for a very large amount, so it's fairly easy regardless of the method I select. In the illustration below you can see the four (4) methods QuickBooks provides for this cost splitting: by Quantity, by Percentage, by Amount and by S&H Cost (manual) aka. manually.

In my case I am going to simply apply it against the quantity, this means that each of the 100 items will be weighted with the same amount of freight as every other item in the shipment. When the selection has been made (as shown below) just click Post to bill.

QuickBooks notifies you that your bill has been updated successfully, and gives you an option at this point to 'update your selling price' (see below), but it doesn't calculate any recommended selling price for you (nor does it give you a math capable field so you can easily compute one without having to rely on a calculator elsewhere). If you wish to update the sales price, check the box to the left and enter a new selling price to the right, then click Update and proceed. If you want to 'think about it', then accept the default, ignore the checkboxes and selling price fields and simply click Skip & proceed... you can always update the selling price later from the Edit Item feature.

But instead of skipping this step, let’s go ahead and change our selling price here based upon the new landed cost. Since QuickBooks doesn't compute a new selling price for you, you must do that on your own, so I am just going to roughly do the math and enter a new selling price of $418.12 (as shown in the illustration below) and then Update & proceed.

When I make this update, both the Landed Cost (in this case 106.04) and the new selling price (I entered 418.12) will be updated (as shown at top of the next page and highlighted in red boxes) in the Item master record. These updates occur behind-the-scenes, in other words the Item window doesn't open (even though I am showing it below), the rest of the Landed Cost process then proceeds normally by reopening the Inventory Vendor Bill. Note also that the Average Cost of the Item appearing in the Item window has changed as a result of the impact of the valuation of the landed costs in the total number of items 250 out of 260. 

As I said, while QuickBooks is updating the Item record it simultaneously returns you to the original Vendor Bill, the one at which you began the process of 'calculating landed costs', but it still has one more prompt, a Post to bill pop-up window (shown below). Specifically, it is telling you that it is showing the calculated expense amount and items associated with landed costs, their amounts and expenses incurred for each are posted to the bill. I am certain that most users will click the box that reads 'Do not display this message in the future' and then click the 'OK' and just let bygone be bygones going forward.

When you accept the message, the columns in the Item tab immediately change (shown below) to add a new 'expenses' field that reflects the Landed Costs and a new 'Includes Landed Cost' banner is displayed immediately above the Original Amount column.

You will also note that a negative amount has been posted to the Landed Cost Account on the Expenses tab as an offset to each cost and also memorialize each associated Vendor, this keeps the overall transaction in balance to the Inventory supplier.

Does the Feature Really Work Where It Counts?

This is a great new feature, and the 'bill aspects' of the feature work just the way we would expect them, and for the most part the feature seems to be working as one would anticipate, but clearly I have not had either the time nor the opportunity to check out the vast array of variations that may exist when landed costs are encountered with things like automated cost updates, or advanced pricing features, or even FIFO inventory.

What I do know is that cost reporting seems to be accurate for 'average cost' inventory tracking, as shown in the example here because you can clearly see the impact of landed costs on the average cost of the purchase as opposed to both the prior historical cost from the initial inventory adjustment cost value and the actual purchase price of the bill to which landed costs were applied.

At present this is really the only way to get an accurate reflection of how landed costs are impacting the overall costs of inventory, but I think there will be better reporting and use of the Landed Cost feature as time goes by. Intuit teams have a history of bringing out features and then slowly bringing along the reports to support those features. It's like "we give you the feature to capture the data first, then we give you the tools to use and report on that data." I really think this is how Landed Cost will be in the long run, until then we have what we have, and what we have seems to work, at least in the tests I conducted.

That's about all I have to say for the new Landed Cost feature in QuickBooks Enterprise (V20) Advanced Inventory, but for an overview of all the QuickBooks 2020 features be sure to check-out my QuickBooks Desktop (for Windows) 2020 Summary here, as well as the companion QuickBooks for Mac 2020 Summary which can be found here. I will be continuing this series on the individual QuickBooks 2020 features every day over the next week or so in our headlines.

Editor's Acknowledgements

My very special thanks go out to Laura Madeira who helped cross-check my work with her own to make certain that we were consistent in providing accurate information regarding this 2020 release. For the official Intuit version of “QuickBooks Desktop 2020 – What’s New and Improved” you will find Laura Madeira's article posted at this Firm of the Future blog website. 

I also want to thank the following Intuit personnel for their dedication not only in providing information, briefings and responding to questions, but in guiding the actual product developments within QuickBooks Desktop and this release: Chetana Arakanakere, Rachna Arya, Nipun Bhatia, Aditya Dixit, Varshitha Gokari, Sumit Poddar, Raman Verma. Of course there are entire teams, composed of hundreds of Intuit personnel, behind these people that make the magic happen and too often we forget to say, thank you, to them as well; so to all involved, "THANK YOU"!