We had a bit of a holiday break, but in our last installment of this series (Part Eight), we discussed how to create Service and Non-inventory Products in QBO. Now it’s time to explore Inventory items!
Inventory tracking is only available in the QuickBooks Online Plus and Advanced editions.
If you sell products on an e-commerce website, consider managing your inventory from there, or use a 3rd party app that aggregates your inventory across multiple channels. That prevents you from tracking Inventory quantities and values in redundant systems. It also means that you can use QuickBooks Online Essentials, since you won’t do Inventory Tracking in QBO at all.
Set-up Inventory
Head over to Account and Settings. In the Sales section, turn on Track inventory quantity on hand.
This allows you to buy and sell goods, tracking the sales and profit margin on each item.
There are two ways to get to your Products and Services list. Either click on Gear > Products and Services, or Sales > Products and Services.
QBO_products-inventory
Click the green New button. Choose Inventory item.
The Product/Service Information window opens. Fill the top in the same way you would a Non-Inventory item.
QBO asks you to enter how many you have on hand as of your Start Date for your company…but don’t! When setting up a new file (as we have been doing during this series of articles) you still have historic transactions to make for the product (purchases or sales), you won’t be able to enter any transactions before that date!
If you try to create any transactions involving your inventoried Products before the As of Date you entered in this window, QuickBooks Online will give you an error message and prevent you from proceeding.
Instead, enter in 0 quantity, and an As of date MUCH earlier than the Start Date. I usually enter in a date two years before.
You will then need to create Bills, Expenses, or Checks using the Item Details to purchase the Items and bring them into stock.
The rest of Inventory item creation follows the same steps as Non-Inventory products above.
Entering Inventory Quantities
After setting up your business’s Inventory Items, it’s time to enter the quantities.
First, create any open Bills and Invoices as of the start date of your company file.
Then, use + > Inventory Qty Adjustment to set the quantity as of the Start Date for your file.
If you don’t have those quantity numbers, get all your business’s transaction history into QBO up to today’s date. Then use Inventory Qty Adjustment to update the quantities to current levels.
QBO_Inventory-adjustment
How Is Inventory Calculated?
When you buy Inventory Products, QBO stores their cost in the Inventory Asset account on your Balance Sheet. That way, the original cost of the stock on your shelves is considered part of the value of your company.
When your company sells the item, QBO automatically transfers its cost from Inventory Asset to your Cost of Goods Sold account on your Profit and Loss Report, effectively deducting the expense from the Income.
QuickBooks Online calculates Inventory on a First-in, First Out Basis. If you buy five items at $1 and the next five items at $1.25, then sell six of them, your Cost of Goods will be $6.25: 5 at $1 and 1 at $1.25.
QuickBooks Desktop uses Average Cost inventory, resulting in a COGS estimate across your entire purchase history.
After taking the setup steps described above, check the Inventory Asset value on your Balance Sheet to see if it matches the old accounting system.
Because QuickBooks Online uses 'FIFO' (First-in, First-out) inventory and QuickBooks Desktop uses 'Average Cost' (actually 'weighted average cost), by the time you’re done setting up a QuickBooks Online file, the Inventory Asset and COGS values on your Balance Sheet may be different. If so, you will have one more adjustment to make.
Create a Journal Entry to adjust the company’s Inventory Asset and Cost of Goods. If you’re not confident on how to create this transaction correctly, contact another trusted bookkeeper or accountant.
Buying Products
Whether you’re paying for your Inventory Product items via Bill, Check, or Expense, be sure to purchase the Products using the Item Details section at the bottom of the form. Don’t just put “Cost of Goods Sold” in the Account Details grid, otherwise you won’t actually bring the Items into your tracking system.
Creating Bundles
After you’ve created all of your Products, you can group them together. That way, when you create an Invoice or a Sales Receipt, you can enter one item and have several show up automatically.
QBO_Bundle-item
For example, when Craig the Landscaper installs a fountain, he always bills for the fountain, the pump, and two hours of installation. By creating a Bundle he can enter one product and the quantity. QBO will automatically populate the full list of items and calculate the grand total.
To create a Bundle, select: Sales > Products and Services > New. Choose Bundle.
The Bundle window opens.
Create a Name for the Bundle and a Description.
In the bottom section, list all the items in the group, along with their quantities.
If you want the Customer’s Invoice to show all the components, check the “Display bundle components when printing or sending transactions” box.
If you only want the Customer to see the single Bundle Description, leave the box empty.
Click Save and close.
The Next Step
Inventory isn’t easy. From choosing the right tech stack for your workflow, to managing Inventory Asset values, there’s a lot to learn.
Don’t feel discouraged if you need to refer back to these steps a few times, or if you find yourself learning by trial and error!
Try checking out one of my classes at Royalwise.com that can help you with troubleshooting techniques and timesaving tips that make QuickBooks Online, including inventory features, easier.
And next time we will be looking at use of the 'Class tracking' feature in QuickBooks Online.
If you would like a deeper dive into Products & Services then please consider taking my next QuickBooks Online® Fundamentals Class. Or view my QBO Video Training Library.