Podcast WSW - Inventory Turn Report
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[00:00:00] [00:00:30]
[00:00:38] Dan DeLong: Welcome to another Workshop Wednesday brought to you by School of Bookkeeping where it's casual conversations for serious workflows. And today we have A casual conversation in some serious workflows converging.
[00:00:55] No One: Yes.
[00:00:56] Dan DeLong: Because Rachel is has always expressed [00:01:00] her excitement over inventory stuff. Tell us a little bit about your background in, in, in inventory management.
[00:01:09] Rachel Dauchy: Yeah, I always have worked for early on I worked for companies that Dealt in services, but for the most part, I've always worked in companies that sold goods, so I'm very familiar with the movement of selling product.
So it's something that can be really complicated, but with all these incredible [00:01:30] reports and tools and. Things that we help our clients with that actually can be Fun and manageable and something that anybody can do
[00:01:40] Understanding Inventory Turnover
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[00:01:40] Dan DeLong: now we're going to talk about a specific concept of inventory and this kind of falls into the What took you so long quickbooks to to get this report of inventory turnover
[00:01:51] No One: so as
[00:01:52] Dan DeLong: The the accountant in the room, or at least someone who's actually going for their master's in accounting.
One of us is [00:02:00] and you get three yeses and the first two don't count. But what would what would be the textbook definition of inventory turnover?
[00:02:09] Rachel Dauchy: Yeah. And actually that's so funny that we're talking about this today, because and my. portal, my school portal. One of we're in, I'm in the second week right now, but one of our assignments this week is to talk about some of those concepts because I'm one of the classes is advanced reporting and something that is really [00:02:30] important in the world of inventory is inventory turnover.
And if you think about it, it's really how quickly can I turn that inventory over? If you think about it, it's really how quickly can I turn that inventory over? From purchasing, and let's say you're manufacturing, so purchasing, manufacturing the item, to listing it for sale, to selling it. That's really the whole process.
How many times can you do that throughout the year? So some people manufacture really quick and they can turn it over several different [00:03:00] times. Other people have a longer process and we're actually taking on a client that has a much longer process because they're actually manufacturing some metal things.
So maybe they can only turn it over two and a half times a year. People that are buying, we've talked about this term before, reselling goods. They're buying things. holding them in inventory and then selling them. So they're not manufacturing anything. They're buying finished goods and selling them.
Those folks can [00:03:30] usually turn things over much more quickly. So there's all kinds of different things to consider in a business where you're selling stuff. Do I want to make it? Do I want to have somebody else make it? And I just feel There's a lot of different questions involved.
[00:03:48] Dan DeLong: In this case, high turnover is a good thing.
[00:03:52] No One: Yes.
[00:03:53] Dan DeLong: Because you're talking about, in a period of time, how many times did I turn over [00:04:00] the stock that I purchased?
[00:04:02] No One: Yes.
[00:04:02] Dan DeLong: So this is the ultimate reading, right? Is either a ratio or a number of the days that it takes
[00:04:10] Rachel Dauchy: to do that. If I said my inventory turned over at a factor of 2.
5, it means that it's turning over two and a half times per year. And this is such an important topic because. We want a report that's going to tell us that, and that needs to come out of, where all your [00:04:30] inventory movements are. And you have to be able to look at that because there's a lot of folks that want to know, how fast are you turning over that inventory?
And a lot of companies have people they have to answer to.
[00:04:42] Dan DeLong: Because then, because you want this, you want the sweet spot of, Purchasing and sales to, to, to align. I remember I went to Dell computer. This was like in the height of Intuit had sent me to Dell because they were actually a hardware partner of QuickBooks point of [00:05:00] sale back in the mid.
Aughts, right? Is
[00:05:04] No One: that what we're calling it? The aughts? Yeah,
[00:05:08] Dan DeLong: 2005 ish type of thing. But, Dell Computer was the height, the height of, or the envy of the computing industry, right?
[00:05:18] Rachel Dauchy: That was the thing,
[00:05:18] Dan DeLong: yeah. They had their campus in Texas and it was really cool to experience that. But the guy walking me around was like, there's where everything is [00:05:30] manufactured and they had perfected, Dell computer had perfected this whole idea of just in time inventory where basically they had timed it where.
Somebody's ordering something and it's getting manufactured at that moment it's just like the perfect cross section of supply and demand, right?
[00:05:53] Rachel Dauchy: Yep.
[00:05:54] Dan DeLong: And that's
[00:05:54] Rachel Dauchy: actually a really good that's a newer phenomenon. brought [00:06:00] on really in the 21st century. It really wasn't a thing before.
And I have a really funny story to tell you because my husband works for General Motors and way back in the day before they would analyze the data, they would go on gut. That's how they would manufacture how many vehicles, per production they would do. They would really just. estimate on gut thinking, ah, now of course they don't do that.
And so just in time is really, if you're able to pull that [00:06:30] off you're doing a good job. If you can do just in time manufacturing.
[00:06:33] Dan DeLong: Yeah. And he was telling me like they, They had it so down to a science.
[00:06:39] No One: Yes.
[00:06:40] Dan DeLong: They sold parking spaces for trucks. And so like they would have premium parking spaces for the parts.
Wow.
[00:06:51] No One: They
[00:06:51] Dan DeLong: would, they would sell. So there's actually a revenue generator of Hey, you want your part in our computer? Pay for this parking. So that. [00:07:00] When it comes time to unload your components, you're right there. And I'm
[00:07:06] Rachel Dauchy: a big fan of premium parking,
[00:07:10] Dan DeLong: right. And premium parking for a semi attractor trailer is pretty, pretty good.
it's not just like those compact spaces where you can, people fit their SUVs.
[00:07:21] No One: Yeah.
[00:07:23] Dan DeLong: So turnover is something for an inventory speak is something that's [00:07:30] relatively useful, right? Because then you have an idea of, okay, how fast is this item or items, turning over in a period of time.
And is there, shipping delays, getting that's all factoring in, part of that that, that knowledge of knowing how for how often during a period of time that an inventory is turned over.
[00:07:53] QuickBooks Inventory Turnover Report
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[00:07:53] Dan DeLong: We created a blog article for you because, guess what, Intuit makes it pretty [00:08:00] hard to find all this information.
So I thought, hey, why not just make it, make a place on school bookkeeping that will have one stop shop. So here we have our Our blog, I put it in the chat in the comments so that you'd be able to access it. But it's got an idea of what the inventory turnover report is, how to access it and those sorts of things.
And Intuit has actually created an inventory calculator with, An explanation of what it is. Nope. That's the wrong. [00:08:30] I need to update the link because that's got the YouTube video that not the, which is already here. So there is an article in there. I've got to update the links in there.
But they've created a a calculator and a definition of what the, what that is. Let me see. I think I might have it up here and I do. There it is. So this this article has a calculator of, how you can do this manually if you wanted to. And it's basically you would [00:09:00] enter the total cost of costs involved in selling your products, your cost of goods sold for, you can do it in.
The grand scheme of things of every, all your items or one particular item in general. And then calculate your average inventory cost for the year by adding 12 months of ending inventory balances together and dividing by 12. That is a lot, right? . You're gonna need to run these reports, your inventory valuation [00:09:30] report for these particular items.
See what the ending. Inventory balances on a particular day and then get that average over 12 month period or whatever period of time you're typically looking for.
[00:09:42] Calculating Inventory Turnover
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[00:09:42] Dan DeLong: Now, Rachel, is it typically something that's done at the end of the year or always a year look back, or is it, or is there a particular time period that's more useful for others, or in most cases, like, When we ask these types of questions is the answer it depends.[00:10:00]
[00:10:00] Rachel Dauchy: Yeah, it depends. It's really you know I would say probably quarter end and year end and that type of thing. Or if anybody maybe in management is asking at a particular time, you know You can pull that whenever because they're on demand reports I tend to use some, i'm not an expert at desktop enterprise.
You definitely are but Even if you're doing this in the cloud with other solutions they all have this kind of reporting and it's just on demand. You can pull it, but I would say, yeah, as part of. Accounting [00:10:30] period ending dates would be really when you want to look at that.
[00:10:35] Dan DeLong: And there's a nice Talk about what inventory, turnover is and how it's calculated and the different methods and there's actually two different methods of calculating but quickbooks will use the cost of goods sold method. So The one method is your cost of goods sold divided by your average inventory and that's what the calculator is pointing to But another method is your sales [00:11:00] Divided by your average inventory So it's whether you're basing it off of your revenue
[00:11:05] No One: Or
[00:11:05] Dan DeLong: Whether you're basing it off of your cost of goods sold do you have Rachel a preferred method to of which to calculate or which would be the more accurate version of calculating that?
[00:11:18] Rachel Dauchy: They're definitely going to give you the same result. You have to also assume that you're always using accrual accounting. You have to with cost of goods sold. But [00:11:30] probably method two. But you could get the same result by using method one.
[00:11:34] Dan DeLong: Yeah. The what it says here in the different options, it says, but wait, that's different.
That's a different than the number of the first formula gave me. Which would you use? Both of these equations have their pros and cons but the first is to calculate the overall picture. Why is it you using the cost of goods sold method a little bit more accurate? Because if you're basing it off of your sales then you've [00:12:00] got things like non, discounts and things, maybe you're doing, that sort of thing.
So if it's not the same price all the whole year through that's not going to be, a, as much of an accurate depiction of how fast that is being turned over or what rate that's being turned over then. Cost of goods sold because that is
[00:12:21] Rachel Dauchy: Really good explanation. Thank you for that.
[00:12:24] Dan DeLong: That's a static number To you as a business owner, what's in your what's in your cost of goods [00:12:30] sold,
[00:12:30] No One: but
[00:12:30] Dan DeLong: that means, you know that you have to be Calculating the cost of these items accurately right and making sure you're understanding where QuickBooks is getting these numbers from so let's take a look at where QuickBooks is getting these from.
[00:12:46] QuickBooks Enterprise 2024 Features
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[00:12:46] Dan DeLong: Now, this is the caveat here, this is only QuickBooks Desktop, and this is only QuickBooks Enterprise, and this is only QuickBooks Enterprise 2024. Now, what I couldn't find out, Is [00:13:00] that whether or not this is a particular flavor of QuickBooks Enterprise, every, everywhere that I looked to just mentioned Enterprise 2024 Release 7 and above.
That tells me that this should be any version of QuickBooks Enterprise 2024 R7 or above. It doesn't matter if you're silver, gold, platinum, diamond. Whatever precious metal you might be having of enterprise, but it does need to be the 2024 version [00:13:30] and updated. And how do you tell what release you're on is you press command or sorry, control one when you're in QuickBooks.
Sorry, this is so tiny, but I can make it a little bigger. And so up here at the top. It's got your Intuit, QuickBooks, Enterprise, Solutions, 24, Release, R8P. So I'm greater than 2024 R7 by having that. Hopefully, I don't mess [00:14:00] things up here. There we go. So that's how you tell. If you're not on, if you're on 2023, sorry, there's reports not going to be here.
If you're on 2024 R6 then you're not going to see this report here either. So you do want to make sure that you're downloading the latest and greatest version of Enterprise. To get to this report once you've activated your inventory then you'll be able to see this report under the inventory reports.
You've got this. Thanks. Inventory turnover by item shows you a little bit of the snapshot of [00:14:30] what it what you'll get out of that you'll understand how your items are selling you'll see the number of days it takes to sell the item and make better business decisions based off of that which is the whole idea of reports anyway is to get some information and see You know, make some insights from that.
All right. So this lists out all the inventory items. There is there's a dropdown up here at the top where you can choose specific items. You can choose multiple items on here if you [00:15:00] want to filter them. But as I sent this sent this out to Hector and and Hector responded that this was.
With his insights, can see he's already looked at this as well. This report is it is what it is, right? If you go to customize this report your display options are. You got a date to choose from. You don't have much, you can't add columns or take them away. You can actually take away columns by doing this little mouse mouse dance [00:15:30] here by grabbing one.
And dragging it to close close the item so that removes the columns, you can move the column around if you want, or at least I thought you could. Yes, you can. So I'm going to close it and bring up the default report again because now I've messed it up because you can't put it back because obviously you've removed the column, you can't put it back.
By running the report again.
[00:15:57] Rachel Dauchy: There's no undo.
[00:15:58] Dan DeLong: Yeah, there's no you can't [00:16:00] go back to customize a report to add the column back in.
[00:16:02] Rachel Dauchy: Oh, okay.
[00:16:03] Dan DeLong: I guess you could hit revert, but didn't notice that. But here we have let me bring this, make this a little bigger so we can actually see it. The the two columns that we're looking for in question here are this turnover ratio and turnover date.
So this is the sample company, so don't get alarmed by the future dates here of 1 1 20 29 and 12 So sample company is future dated. But [00:16:30] here, this item, let me make this a little bigger. We've got a pool cover, right? And the description and the turnover ratio is 1. 03. And in that date range, we have, it took 354 days to, to turn over the amount that we have.
Here's our cost per unit, our sales price, trying to get to a place where I can scroll. Oh, I can use the, I can use [00:17:00] the keyboard shortcut and then we've got the quantity on hand, your reorder point, your minimum and maximum, there's your cost of goods, the closing stock, and there's more columns, and I can't get to them.
Okay, so we're going to Resize again.
And there we go. So then we've got the opening stock, purchases during that time period, and then that gives us it's [00:17:30] calculating the average inventory.
[00:17:32] Navigating QuickBooks Reports
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[00:17:32] Dan DeLong: Now typically with most inventory, or most reports inside of QuickBooks, You can quick zoom on them to get to those Detail reports as to where those came from Unfortunately with this report you don't have that luxury, right?
You You can quick zoom on it But all it does is bring up the edit of the item that you happen to click on so if you needed to make some changes to [00:18:00] modify where these this where these numbers might be pulling from. You could, or change your account or anything like that you can do with editing items inside of QuickBooks Desktop.
But you can't confirm your cost of goods sold, this cost of goods sold number. So if I wanted to confirm, my cost of goods sold during this time period for this particular item of 11, 179 and 97 cents. You're out of luck there. So you can't
[00:18:27] Rachel Dauchy: click on that and it'll go to that. You got to [00:18:30] go into your P& L and look at it that way.
Yeah.
[00:18:33] Dan DeLong: Yeah. You'd have to run a report on that on that particular item, maybe a quick report or an inventory valuation filter for that particular item, which now adds more. More steps to confirm that, but. The report itself is doing what it's supposed to do, because it will figure out the cost of goods sold for that time period, and then divide it will do that mathing of getting your averaging, [00:19:00] average inventory during that time period, and then do the calculation.
So if we use the And it's doing
[00:19:06] No One: method two, yes?
[00:19:07] Dan DeLong: It is doing method two, which is dividing your cost of goods sold by your average inventory. So if I did that, eleven thousand one ninety seven cents, divided by, The average inventory of 10, 117 and 52, I get [00:19:30] 1. 03350. Yeah. There's my turnover ratio of 1.
03 listed there.
[00:19:38] Rachel Dauchy: And then you can see it's also, what, 354 days. So that makes sense that 1. 03 is about, Just shy of a full year. It's, you're just a little bit better than that full year. So that's that is right. So that's,
[00:19:55] Dan DeLong: yeah. And that's telling, and you can see each item has a different.[00:20:00]
[00:20:00] No One: a
[00:20:00] Dan DeLong: different number. So if these items are related if you're looking at all of your pool covers, you've got different styles and those types of things you can see maybe this one's selling better than others. And then just making sure because the thing is that you don't want inventory just sitting around, not being moved.
[00:20:21] Rachel Dauchy: Yeah, this is really great that you can see your top sellers and, make your adjustments accordingly.
[00:20:27] Dan DeLong: And, oh, I was wondering, can I [00:20:30] sort by, yes, you can sort by, yes, you can sort by the turnover ratio or the days. So then you can see oh, let's do it that way. So there's our pulley bracket, it's got a turnover ratio
[00:20:42] Rachel Dauchy: of two.
You've got to get rid
[00:20:44] Dan DeLong: of it! Yeah, we've got a lot of zeros in here. But that's where we would get some insights from this report. It's like, why are these things not turning over? And then that will lead us to other other options or other reports to get, to glean that insight as to [00:21:00] why.
[00:21:00] Rachel Dauchy: I was referring to the thing sitting there for what, 18, 000 days? Oh, yeah.
[00:21:06] Dan DeLong: Yeah, my four inch drum. Yeah, so apparently there's not a big draw on aluminum four inch drums, but it also gives you, insight into how much is this costing you for it to sit there for, 18, 200 days.
So that's good. And that's that's what this will, we'll give you an an idea. It was like, okay, it's going to take you 18, [00:21:30] 200 days to to turn over this inventory. Which will be a long time, right? Like maybe, and maybe that's appropriate for this type of item or maybe it's not right.
So there's a, there's always the depends factor when it comes to, is this number good or bad for my business? That really just depends on the types of inventory that you're selling, the type of business that you're in. But typically like you had mentioned, [00:22:00] Rachel, a high turnover is preferred because that means that you are turning over that inventory throughout that period of time and how many times that is.
So that will dictate your purchasing decisions. So again, you have that sweet spot of. Purchasing and sales co existing and, the last thing that you want is stuff sitting on the shelf that's not being sold or stuff that's being sold that's not on the shelf. Those would be bad. [00:22:30]
[00:22:31] No One: Yeah.
[00:22:33] Dan DeLong: So again, so there's there's this this report, but it's only in Enterprise and it's only in 2024.
And with that. We have a challenge in
[00:22:47] Rachel Dauchy: there before.
[00:22:48] Dan DeLong: No, this was just released in release seven of twenty twenty four. But there was some
[00:22:55] Rachel Dauchy: kind of inventory days report though, wasn't there?
[00:22:58] Dan DeLong: Yeah, there's Yeah, because I've
[00:22:59] Rachel Dauchy: pulled [00:23:00] that report before.
[00:23:01] Dan DeLong: Yes, if you have your advanced inventory, so this again would then now be for platinum platinum and diamond versions of QuickBooks, where you would have the inventory.
Advanced inventory function, and you have to have FIFO turned on in order to see this report. So I just wanted to double check and make sure that it was there. But to your point, under your inventory report, you've got the inventory aging report summary in detail. So this [00:23:30] will give you the average days in stock.
For each particular item what's current, and this is very similar to like your AR aging or your AP aging but one, one unique fact faction of this report is that the numbers in here on, on the date ranges are dollars as opposed to quantity. So it won't give you the idea, it'll give you the idea of the dollars of what's in stock [00:24:00] and how long that's been sitting there.
So these two reports are super helpful in determining how old is your inventory and how frequently are you running through it? Because you may have a seasonal business and that may be, that may pose a unique challenge to you as well. But one thing that we want to Chat about with regards to enterprise is the end of the month.
We, we talked about this a little bit on a prior workshop. The the [00:24:30] pricing changes that Intuit has announced in June. Part of that is the discontinuation of discounts for enterprise and that is going to stop, as of today is it's going to stop at the end of this month. So September 30th 2024 they are removing any like a long term pro advisor discount from enterprise subscription.
So if you're QuickBooks pro advisor and you refer your [00:25:00] client to To purchase Enterprise those discounts will cease to exist on new subscriptions after September 30th of this year. If you want to take advantage of this report, and you want to take advantage of invoice the the discount please do so before the end of this month.
Because they will still honor the discount as long as you have an active subscription, as long as that subscription was started before the end of the month. So I've [00:25:30] placed some links in there, and we've also got a QR code here. So you can just check here. If you wanted to order Enterprise, you can click on that, or snap a QR code there and then that will take you out to a place to show you how to order that so that you take advantage of that discount.
Any thoughts Rachel, on, on this report or this function or feature of QuickBooks Enterprise?
[00:25:59] Rachel Dauchy: No [00:26:00] it's cool that they added this. It's very helpful. I don't really use enterprise, but there's a lot of folks out there that do. And this is definitely a really helpful tool.
[00:26:10] Dan DeLong: So this was this was something that was never in QuickBooks.
Like you don't have, this is a brand new report. You never had this function in any version of QuickBooks. So to see it come into to enterprise and a QuickBooks product is again, one of those, what took you so long to get here? [00:26:30]
[00:26:30] Rachel Dauchy: It's nice that they did it because, with them sunsetting all the other desktop products, it's nice that they're adding something, such an advanced function and desktop enterprise.
It makes like a little signal of, this product's going to stick around.
[00:26:43] Dan DeLong: Yeah. That remains to be seen
[00:26:45] Rachel Dauchy: for a while,
[00:26:47] Dan DeLong: right? They wouldn't put this in if it didn't have a need
[00:26:52] No One: to
[00:26:52] Dan DeLong: do that, because there's quite the I'm going to turn off the stop sharing here.
And of course, here we go again with the size of [00:27:00] huge area. But yeah that, that leads to the discussion of, all right what's the fate of QuickBooks desktop. It's really hard to find to, to the point to find this article about this this feature.
You could type in the actual.
title in Google. And it still doesn't come up, right? Like you have to know what you're looking for in order to, or to find it.
[00:27:27] Rachel Dauchy: What do you mean title? What did you
[00:27:29] Dan DeLong: [00:27:30] put in Google? Just use the inventory. Let me show my screen again. This this article here.
[00:27:36] Rachel Dauchy: Oh,
[00:27:38] Dan DeLong: what the report.
What insights you get from the report, how it's being calculated how do you activate it? It's available from, if you, it's backwards, right? So I can get this article from within QuickBooks by clicking on, find out a more about this report, but I have to get to the report in order to see this [00:28:00] article.
[00:28:01] No One: Right.
[00:28:03] Dan DeLong: So the discovery process of this is it's not. Here, you have this discovery hub, right? Which will give you the what's new, right? And this is where the turnover report is and it'll take you there, right? But unless you know what's, what you're looking for, it's really hard to find.
And then this report out on the interwebs is not really available unless. [00:28:30] You find it specifically cause you could type in, use the inventory turnover report. Now I'm gonna, I'm gonna put it to the test here. I Googled that the first one that comes up is a video. This is not the article.
[00:28:48] No One: I
[00:28:48] Dan DeLong: mean, I use the actual article title and I find other, I don't find that particular one, so either this is a other
[00:28:58] Rachel Dauchy: times where I [00:29:00] have tried to find things In QuickBooks, articles and stuff in there. And sometimes it's not always easy to find.
[00:29:07] Dan DeLong: Yeah. So that's what we've done on the blog is to put everything in one place assuming I've linked to the right place.
So I've got to double check that. But that's that's what we've done there for you. We'll take this this conversation and input it up there as well. Again, you'll have a have all things inventory turnover in one place. Appreciate you joining us [00:29:30] Right and we appreciate you joining us for yet another workshop wednesday and oh Wait a minute.
I wanted to, hey this didn't make it so huge. So we're the same size again. So next week we're going to talk a little bit about the shipping labels in QuickBooks online. We had talked about shipments and fulfillment and those types of things in in the e commerce fundamentals that we were talking about.
But now QuickBooks online [00:30:00] has the ability to to manage or print shipping labels from within QuickBooks online. So we'll talk a little bit about that next week. And any other thoughts Rachel on on what's going on or what we talked about today?
[00:30:17] No One: Nope.
[00:30:18] Dan DeLong: Alrighty. So we'll see you next week on the Workshop Wednesday, and I hope you have a great day. [00:30:30] [00:31:00] [00:31:30]
