The Nuances of Inventory Tracking in QuickBooks Online
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[00:00:00]
Introduction and Workshop Overview
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Dan DeLong (2): Oh, welcome to another workshop Wednesday where it's casual conversations for serious workflows. I think Noah and I were. Battling over who was gonna show this thing at the bottom. But it's brought to you by School of Bookkeeping where it's where you can learn QuickBooks your way. [00:01:00] Am I gonna click it, Noah or you?
He is okay. Oh my gosh. This one? Yeah, we want this one to go up. Alright. Hi Rachel. How are you?
Rachel D (2): I'm good. How are you?
Dan DeLong (2): Fantastic.
CPE Credits and Earmark
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Dan DeLong (2): Yeah, as Blake was saying our, workshops are eligible for CPE credit and we do have I think it's a metric shit ton of prior workshops available for CPE know if you wanna set up that the QR code, if anybody wants to check out our channel on earmark, we have a whole bunch of, prior workshops on school of bookkeeping.
I'm sorry, on earmark from School of Bookkeeping. And I was telling you Rachel Blake and David were doing the accountant podcast and at the end they were talking about earmark and [00:02:00] showing the webinars and things that they had and there we were. And they even called us out on the podcast, which is really cool.
Rachel D (2): Wow. That's great.
Dan DeLong (2): We're famous.
Rachel D (2): I know. And earmark is so cool. I just, I love it.
Dan DeLong (2): Yeah, it's really great to be able to. Do the, CPE credit on your own time, right? And being able to do that. So love the, love that as a, as an option for our community.
QuickBooks Online Inventory Management
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Dan DeLong (2): So today today's topic is all about the subtle nuances of of inventory in QuickBooks Online.
Rachel D (2): Or maybe not so subtle.
Dan DeLong (2): Yeah. Yeah. There are some unique things that you want to be aware of especially if you're coming from desktop, QuickBooks and, coming into QuickBooks Online that you, I. It might be new, a new whole new territory for you Just when you [00:03:00] thought you had everything under, under control with with your inventory management in QuickBooks Desktop, you're come here, you come over to QuickBooks Online thinking, Hey, this is exactly the same.
Oh, no, not. Not at all.
Rachel D (2): And people do. And yeah, it is really important to understand the distinction because I often get a lot of inquiries of it. They, people just think it does the exact same thing and it just doesn't.
Dan DeLong (2): Yeah.
Understanding Inventory Workflows
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Dan DeLong (2): And we have a course on school of bookkeeping all about handling, inventory in QuickBooks where we unpack some of the fundamentals about, about inventory management really just talking about the, concepts behind inventory management. And you do a great job of talking about periodic. Perpetual inventory and defining [00:04:00] those terms in, in, in that course.
And then we talk about choosing the right version of QuickBooks for inventory. And just really the, what we call the three different buckets of of inventory management when it comes to business workflows of I buy stuff, I sell stuff, or I buy stuff, I do something to that stuff before I sell other stuff.
The advanced inventory of I buy stuff, I put stuff in a warehouse, or I send it to another warehouse, and I need to know where all my stuff is before I build it and then sell a different product. Those are the. Three main categories that we call of, inventory management when it comes to that, and we lay that out in here.
And then we talk about managing inventory inside of QuickBooks Pro or Premier, inside a desktop. And then with QuickBooks Online, right? [00:05:00] And so the main. Concept. I think that we want to make sure that when people are managing their inventory or running inventory inside of QuickBooks Online is.
The, they wanna fall into the first bucket of I buy stuff and I sell stuff. Yeah. And you a reseller, right?
Rachel D (2): Yeah. Yeah. And I, and it's funny too, because the more I've thought about it and I have to be really careful myself because there's. Really two things at play. There's really understanding how inventory works and understanding the inventory workflow.
And a lot of times I'll get wrapped up in that and I'll sometimes forget that sometimes people need really just to understand how the software is working, right? And so that's a whole different thing. And so this discussion is really geared towards. [00:06:00] What can the software do? And but that is just as important, is really understanding the not the ins and outs of, inventory.
QuickBooks Online vs. Desktop
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Rachel D (2): And and because what we just said, a lot of people come to QuickBooks Online kind of thinking that it has the same, workability as QuickBooks Desktop. And then the reason, and it doesn't, and the reason why it doesn't, is because with this ongoing discussion about QuickBooks Online, and I know a lot of people don't care for it, but I love it.
The reason being is because of it's web based and I.
It being cloud-based and I can really bring information from all different sources. And they can really improve the efficiency of their entire business by [00:07:00] moving to QuickBooks online and streamlining a lot of different things all at once. It's definitely not for the faint of heart, but it's, but once done it, it really is just so cool.
And the, effort. Or the, end goal is really, we're not necessarily doing all the things in QuickBooks online, but we're bringing all the data into QuickBooks online for financial tracking. And like you said, with a more of a simple operation of just buying and reselling stuff.
In many cases that can be done in QuickBooks online, but when you have a more complex manufacturing operation, you just don't even wanna try. Just don't even try and do it in there. It's not gonna work.
Dan DeLong (2): And it doesn't mean that you can't have inventory and not use QuickBooks online, right? It's just whether, no, not
Rachel D (2): at all.
And I have lots of clients that do it that way. It just means that we track the inventory [00:08:00] and the increasing in decreasing of the actual items outside of inventory. And we're just capturing the financial piece in QuickBooks. And one of the things I hope. That we maybe can talk about today is, like these subtle differences is I get a lot of.
Questions of people that are often very confused about, I'm not tracking inventory in QuickBooks Online, so why am I still using product service items? And there's, some confusion about really how that works and why, that would be. So maybe that's something that, that we can touch upon.
Yeah.
Dan DeLong (2): Yeah. I don't we, could certainly, especially when it involves. Inventory. There's a lot of weeds that we could, find ourselves in. But the general. Big thing, a [00:09:00] big difference between a QuickBooks Desktop and, QuickBooks Online has to deal with its cost calculation.
Rachel D: Yes. And
Dan DeLong (2): how how QuickBooks is going to be calculating cost of goods sold for the items that are sold. Yes. And that is, that's one of those nuances of, inventory inside of QuickBooks that you really wanna make sure that You're You're you grasp fairly well before.
Even turning on.
Rachel D (2): Yeah, I agree. Inventory. And, that is one of those things where you do wanna understand the inventory workflow when it comes to that because you wanna understand that you make your purchasing and things are, you're purchasing things at a cost and you enter that and we're not necessarily entering things with inventory adjustments.
So, there, there is a cause to, to make sure you wanna know that workflow correctly. But, [00:10:00] but anyway, go ahead.
Dan DeLong (2): Yeah. The, biggest thing to, to keep in mind is that QuickBooks Online is going to use FIFO as its cost calculation. Meaning first in, first out.
Rachel D: Yeah. And
Dan DeLong (2): everything leads back to.
That fundamental thing, right? Desktop used a weighted average, and then if you were using QuickBooks Enterprise Platinum, you did have the option to, to calculate first in, first out in inside of Enterprise. But where this comes into play with QuickBooks online. Because it's first in first out, and it's only first in first out.
We just need to make sure that you're aware of what what that entails. And so QuickBooks in inside of an inventory item is going to have a thing called a start [00:11:00] date, right? So that it needs to know where the F of. First in, first out is actually it. That's not FAFO. It's FIFO. But that start date is gonna be super important when it comes to using an inventory item.
Now that start date can be. Changed, right? Like you can always change and move that starting valuation of, inventory, of here's that line in the sand of where I'm gonna be starting using this item. And that can be changed with one exception if you've moved from desktop to online.
So if you're starting natively inside of QuickBooks online and, creating a brand new item, you can choose when that start date actually is. Purpose being is that you cannot enter historical transactions [00:12:00] prior to that start date for that item because that is that just as the name implies, that's the starting point of QuickBooks, calculating fluctuating costs because it needs to know, right?
If you start with a hundred widgets at a certain cost, it needs to know when those are depleted. Before it starts to calculate the cost of goods sold of the next batch that might have had, increase in cost, right? So
Rachel D: yeah,
Dan DeLong (2): that's why that start date is super important. And one thing that I didn't even realize I was trying to find this article that was on Insightful accountant.
Murph did a really great job of it, and I can't find it. Maybe it's under their premium content that I'm not paying for anymore. But, he had I was I didn't realize that. There's a limit [00:13:00] to the amount of transactions that are gonna be allowed for an inventory item because of that start date issue, right?
So
Rachel D (2): I didn't know that.
Dan DeLong (2): Yeah. If you're using, QuickBooks online to track your inventory you'll have a maximum of 25,000 transactions affecting that. Affecting that item before QuickBooks says, no, you're gonna have
Rachel D (2): to, and then I, guess you're gonna
Dan DeLong (2): have to start another item.
Rachel D (2): I was just gonna say why you just create another item, right?
Dan DeLong (2): But then you lose all the history.
Rachel D (2): Yeah. Yeah. Can I just say though, because. I'm you're such an expert. And so I'm thinking of this from the perspective of I started using QuickBooks online five years ago, and when I first started using it I, it, I was really confused and it took me a while to really [00:14:00] understand.
And so, I wanted to like, just back up just a little and I just wanted to say if I was brand new to QuickBooks Online.
Product and Service Items in QuickBooks Online
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Rachel D (2): The one thing that I wanna be clear about to anybody that might be listening is. If I have decided that I would like to track my inventory quantities in QuickBooks Online, meaning I wanna know that I have bought a hundred widgets and I have a hundred widgets on hand, and then I sell 10, and then I have 90 left, and then I'm recording my cost of goods sold for those 10 items sold.
On a. I just wanna say you can only do that in Plus or advanced, right? So even though QuickBooks Online uses a product service item in Simple Start Essentials [00:15:00] Plus and Advanced. Is there another one that I'm missing?
Dan DeLong (2): Ledger, but there's, oh, okay. Okay. I don't think there's any product. I
Rachel D (2): don't, yeah I don't think you can even do that in Ledger.
But so even though all four versions do utilize the product service item, and that's, and all that means is on an invoice, you can say if you're a service based company, your product service item is gonna be. Landscaping. If you're Craig's Landscaping maybe you've got landscaping A, B, and C.
And so that product service item is going to point towards an account that's gonna spit out on your financial statements, on your p and l. And when you're in either Plus or Advanced, you can use that product service item. As a [00:16:00] product, not just a landscaping service, but actually a product. And that product can be an inventory item or a non-inventory item.
And all that means is, and the only reason I'm saying this is I wish somebody would've told me this right in the beginning, like I was a kindergartner.
Rachel D: Yeah.
Rachel D (2): And so in that. In plus or advanced, if I can do an inventory item or a non-inventory item, the inventory item is going to allow me to track the ups and downs of the quantity of what I am buying and then what I'm selling.
That's all. And that's, What you would if you were tracking your inventory in QuickBooks Desktop. That's what it'll allow you to do in QuickBooks Online with all of these limitations that like what you're talking about with the start date and, what can come over from QBD and all this stuff.
But you can use. Non-inventory items [00:17:00] forever and never worry about tracking inventory if you have to. It is an option that you can do. And like we've said before, there are many circumstances that I have clients that are simple enough that they are buying stuff and reselling stuff and not even a lot of stuff and small purchasing that we can manage it.
Very simply in QuickBooks Online, map it and it's all great and, you can connect to e-commerce channels and so on and so forth. So, you, so that's something that I really wanted to, say because there are people that are, that they may be super skilled bookkeepers, but they're not used to QuickBooks online.
And that is something that once you've determined those buckets, buy stuff, sell stuff. Buy stuff, man or whatever, then you know you can do it and you really, it takes a little [00:18:00] bit, but you can really you'll get it and you can really manage your inventory quite.
Here in, in QBO and, Good, I'm glad you're showing that.
Dan DeLong (2): Yeah. As, as you were talking so there's the products and service list, which I think what, to your point, the terminology is where people get bent around the axle about, okay, if it's a products and service list and I sell products, then I should track inventory.
No. Yeah, Doesn't mean that for sure. But there are, yeah.
Rachel D (2): And the rea Sorry, just before you say this the, reason why I really wanted to hammer this home is because my, of my clients are constantly confused about this. And or not even necessarily my clients, which is other people I talk to.
And so a lot of times they'll say, just point the product service item [00:19:00] to this account. You. In some situations you have to create a new item that is just gonna point to an account. Sometimes you don't need to. And so it can get really confusing. So that's why I think it's important to, yeah.
Talk about these fundamentals. So
Types of Items in QuickBooks Online
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Dan DeLong (2): as the, as they're listed here. So I just brought up the product and service list and clicked on creating a brand new item, and the first thing it asks you was what type of item? It's Right. So you've got your inventory items at the top right. Products you buy and or sell.
To track quantities of, that's pretty much. The, workflow that you would want to do if you wanted to create an inventory item. Then it says non-inventory items, products you buy and or sell, which sounds very familiar to an inventory item. Uhhuh but don't need to. And then in parentheses says or can't.
Rachel D (2): Yeah. And you know what quantities
Dan DeLong (2): of.
Rachel D (2): I almost wish that [00:20:00] Intuit would update that description to say, 'cause this is again, a source of confusion constantly is to up that update that to say, because maybe you're tracking your inventory somewhere else. Because a lot of people are coming to QuickBooks online because they're tracking it in an inventory app or somewhere else, or in Shopify or in whatever.
And we don't want it tracked in QuickBooks Online. As a matter of fact, you shouldn't be tracking it simultaneously here and there, right? And so it's really important that non-inventory items are being used. If you're tracking it somewhere else. So it's just sometimes they don't say that or clearly enough.
And so that's another source of confusion that, that I often see.
Dan DeLong (2): That's, job security for you then, right? [00:21:00] And they use an example of. For an example, nuts and bolts used in an installation, right? Yes. You do not wanna track, the lumber that you purchased or job supplies as individual things unless you do, right?
Yeah. Unless you have a whole stock supply stockpile of stuff that you need to know. The comings and goings of all of that stuff. Yeah, and
Rachel D (2): that's a very common example of I don't wanna track inventory because I have a bag of nuts and bolts. In, in accounting and bookkeeping speak.
That's true. Yeah. But now that we've entered this world of. Tech and integration and apps and all these different things talking to each other. It needs to be extended to, because if you're, if you are tracking your ups and downs in a different system, we don't wanna do that here. [00:22:00]
Dan DeLong (2): And then and then the, another type of item is service, right?
So services that you provide to customers. So the basic difference between. Service items and non-inventory items is whether this is a thing
Rachel D: Yeah.
Dan DeLong (2): Or labor, you know that Yeah. Work that you're doing. So that's a simple thing. But here's the mind blowing thing, is that there is no difference to QuickBooks between a service and a non-inventory part as far as the functionality is concerned.
Rachel D (2): No, they're basically the same.
Dan DeLong (2): Yeah. You can have services. That essentially are I non-inventory parts and They they are, they behave the exact same way when you use them.
Rachel D (2): Yeah, they do. And as a matter of fact, in some inventory apps when it brings over these transactions if the [00:23:00] item product service item isn't there, oftentimes it'll create one and sometimes it'll create a service item.
You're like, what? But that's, but the system understands them to be basically the same thing.
Dan DeLong (2): Exactly. So just looking at my. List here, right? This is my, my, my candy candy listing. Here I have a five beach mint, 10 count gum that's listed as non-inventory, which would have the same thing as my, it would have the same potential.
Use, use as far as QuickBooks is concerned as this finance charge item that I have set up as a service.
Intro (2): Yeah. Yep.
Dan DeLong (2): And this gets into some of the differences between desktop and, online, where QuickBooks desktop will have a variety of other item types that you could, that you can choose, like other charge payment items, and those types [00:24:00] of things.
But again. A lot of those don't have any different functionality. It's just what you call them to make Yeah, make that seem, make more lo logical sense.
Rachel D: Yeah.
Adjusting Inventory Quantities and Values
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Dan DeLong (2): But when we create an inventory item, I'm just gonna open up one. The, biggest things that affect inventory is this middle part here where it talks about quantity on hand allows you to adjust.
You, the quantity on hand that you have and your starting value. You can put in things for reorder points so that it doesn't physically get below a certain point before you reorder it, because last thing you want to do is run out of stuff when somebody wants to buy it. And then it'll list the quantity on the purchase order, and then it's gonna ask you where do you want the, value of your purchases to go to as far as what's on hand.
In that inventory asset [00:25:00] account, right tho that's the section of inventory that's on this pa particular type of item. And the nuances are all based off of, some the things that you do inside of here, right? Because we were talking about, first, and first out, the starting date.
And a limitation of 25,000. And the reason being behind all of that is because every time that you use that item on a transaction, it has to go back to that start date to make sure that it is calculating. The o of the first in, first out, right? And make sure what what organ, what what order that those items are in, and what the cost wa was associated with that.
Yes. [00:26:00] So if you use that item a lot, over 25,000 times, you can now see that as you get. You do a transaction today and there's 25,000 transactions for it to figure out, what version what is the cost of this one item?
Rachel D: Yeah, That's gonna,
Dan DeLong (2): that's gonna cause some. Some gears to be spinning and smoke to be coming out of the servers.
Rachel D (2): I would, and I would also guess if it's, there's a lot of purchasing right? Coming in over and over and over and over and over You've got many. FFO layers going on. Especially like fluctuating prices. So it, wants to, know where it is in the queue,
Dan DeLong (2): exactly.
Rachel D (2): Yeah. Yeah.
Common Errors in Inventory Tracking
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Dan DeLong (2): So Matt is asking, what's the most common error with inventory tracking? I, would have to say the most common error is not setting it up properly. [00:27:00] And and where people will, get an, they'll enter a purchase transaction but not use the items if they are using inventory items.
Rachel D (2): Yep, yep.
Dan DeLong (2): They'll just put in a, bill go down from their supplier and they categorize it all to, yeah. Cost of good. Sold. Cost of good. Sold.
Rachel D (2): Do
Dan DeLong (2): you agree Rachel, that's probably,
Rachel D (2): yeah, that and then also, put starting maybe starting the inventory with an inventory adjustment and then, but really it's Bill that, that.
It needs should have been added that way. And then also, what I. Putting the GL or I don't know how to [00:28:00] say, a GL account, like a normal speak, like the account. Yeah. An account that's not correct. And so I've seen it before where they're like, they're not, they'll put a, an. An expense account where it's supposed to be inventory, so then the financial statements are all goofed up 'cause it's pointing the wrong direction.
So I've seen that before too.
Nuances of Inventory Items in QuickBooks Online
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Dan DeLong (2): And this is, this that leads perfectly into a nuance of inventory items inside of QuickBooks online. In that, if you. Put the wrong account and you use the tra that item on a transaction and you realize, oh, this was wrong. So maybe instead of pro sales of product income, this should really go to.
Sales, right? So I'd rather have it go to sales and you can change it, right? There's nothing stopping you from doing that, [00:29:00] but unlike other items, you get this checkbox that says, update historical transactions when you save it, which will. Tell QuickBooks to go back to every transaction that it was ever used in and put it into the sales account as opposed to sales of product income.
Rachel D (2): Yeah. I will, oh, go ahead. Go ahead.
Dan DeLong (2): And it won't do that, right? So it's again, because of this whole first in, first out, I'm assuming that's the problem is that it can't go back to historical transactions and do this, by changing accounts, you are not able to update historical transactions when you save.
So I'm just gonna give an ex I'll go into the non-inventory item, do the same thing, go to sales of product income, and I'll change it to sales. Now I have this. Also update this account on historical transactions. So your service-based [00:30:00] items and your non-inventory items as those types allow you to modify historical transactions when you save them.
Inventory items that are set up as inventory items cannot. Do that.
Rachel D (2): Yeah. So basically you're just you're not changing in where inventory items or have been posted historically. You're just changing the category. If, if, are you saying if invoices were. I'm having a hard time explaining what I'm trying to say, but anyway what I was gonna say though is you do have to be careful that though, if you're changing.
Something like, okay, so are you saying it doesn't allow you to do it if, it was an inventory item? And the, okay, so if it's non-inventory items, it will update historically. [00:31:00] But you do have to be careful that you're not changing something that was an income statement account to a balance sheet account.
'cause people use deferred revenue. And oh my goodness gracious. My, my plea would be. If you're not sure, ask somebody with an understanding of accounting because boy, that you can create destruction with. Yeah.
Dan DeLong (2): And Matthew also pointed out you can't choose the starting date for those historic No, you cannot.
Rachel D (2): No, you cannot. It's all or nothing. Or
Dan DeLong (2): yes, if this was used, all or nothing yeah, that, that could change their, their, income statement from prior years. And
Rachel D (2): yes,
Dan DeLong (2): that may not be something that you wanna do. Yeah.
Rachel D (2): So I would say use this really, if you know what you're doing and like really even then proceed with caution because.
It can really throw a wrench in what you're doing. [00:32:00]
Tracking Costs and Tariffs
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Rachel D (2): But, oh Matt also had another question about the tracking the cost of tariffs.
Dan DeLong (2): Yes, That's gonna be in its depends answer I think. Now one thing that, that QuickBooks Online cannot do inside of inventory tracking is calculate landed cost.
If you want to roll. The cost of things that aren't the cost of the item into the cost of the item. You cannot do that with a touch of a button, right? No. So things like I. Tariffs, sales tax, freight, shipping, any other kind of fee that would that, that would come along with the fulfillment of your inventory items and being received.
I. Is is not something that you can easily, track into the [00:33:00] cost of the item when it's sold, right?
Rachel D (2): Yeah. Not now. When it's sold, no, because you, that, that would mean you're going to put all the inventory. Related costs such as tariffs and shipping and insurance and whatever onto the balance sheet with the inventory and expense it at the point of sale.
Your really, your only option would be just to put it to cost of good sold right off the bat. And if you're dealing with tariffs, chances are. You're dealing with large quantities and for my bigger sellers and they're, you can't just hit cost sold right away with that.
Dan DeLong (2): Yeah. And there's a trade off when it comes to rolling in all of these fees into the weighted average, or the, I'm sorry, into the cost of the, this, these particular items.
Because you lose that visibility into, yeah, how much did these tariffs actually cost us? [00:34:00] Or these fees or, what have you because you're just rolling it into that landed cost of that particular item. And so then you, see the cost of these items are increasing because you're rolling into that final cost of, that item so that it gets recognized when it's sold, but you don't see the visibility into, how is, how are these fees increasing over time? I.
Rachel D (2): Yeah. And
Dan DeLong (2): the cost of the item is, but does the, is that be, is that due to the cost of the item or is it due to the shipping? Is it due to the tariffs or, what have you?
Rachel D (2): And that's why as a matter of fact, and this is really relevant, today's day with.
The, all these tariffs. I would highly if you if, you're somebody you know you need to track landed costs, then I [00:35:00] would highly recommend you use an external inventory app such as. Syn seven Core or Katana. If you're if, that's if that might work. Katana does have some limitations, but but I do like these apps because really when you're purchasing, you can split up all of the elements on the purchasing documentation such as.
Just your, the cost of your item, like period, end of story. And then if you need to add in additional labor costs or any type of premiums on that, or freight or insurance or a additional duties or whatever those apps have the. Ability to enter them as landed costs. So you can see the the detail of that when you're looking in [00:36:00] your inventory system.
And then, so you can separate that out. And then the great thing is, then when it. Sends the value over to QuickBooks online. It'll put the cost of the whole order all together on your balance sheet. And then when you do that little bit of cost of goods sold with each point of sale, it'll grab. The portion of tariff that's allocated to that one SKU and the portion of freight that's allocated to that one sku.
It's really, great. And so that's where I highly encourage you get with an expert in this external inventory tracking because, yet, you really just don't wanna do that in qbo.
Dan DeLong (2): Yeah. I think the, best practice if you're using QuickBooks online to track your inventory is to not try to figure out the landed cost, [00:37:00] of these fees and just keep it separate.
Now, you could do things like associate. A class to these to these items and tariffs and, fees and whatnot. And then looking at your profit and loss by class. If you're not already using class for something else, you could then put that aside so that you can see the overall gross profit of these particular items.
Rachel D: Yeah. Yeah.
Dan DeLong (2): And then use that as a reporting. But if you. Do need to move these fees into the landed costs of the item. I would agree with you.
Rachel D (2): Yeah. And even like that same example that you just gave, I would still only do that if it was like. A few shipments. I would not do it if it was heavy and a, you know that you have those people that are like I don't wanna pay for blah, blah, blah.
And it's I'm not gonna [00:38:00] use something for what it's for if it's not made for that. And so that's where I've sometimes. Run into that before where they wanna force something into QBO, that's not really meant to do that. And I'm also not gonna lose any more of my hair over that, I'm not gonna yank my hair out because we're trying to hack landed costs into QuickBooks online. I just, I'm not gonna do that right
Dan DeLong (2): now. The last topic, 'cause we're already over time. We went down several weeds. Thanks Matt, for that. No, but those are
Rachel D (2): really important questions and they're, and tariffs now are a huge deal.
And that's why you right, people really need to know should I, can I do this in QBO? It's a common question.
Dan DeLong (2): Yeah.
Challenges with Cash Basis Reports
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Dan DeLong (2): One of the last things that we wanna talk about with, when you are using inventory, [00:39:00] the cash basis reports are not gonna be accurate or they're not gonna be what you expect them to be.
Because when you have inventory turned on in this whole first in, first out that is an accrual based type of workflow. Would you, would that be the simplest way to describe it? Yeah, Rachel.
Rachel D (2): Yep. Oh God. Yeah because what we were saying earlier, when I recognize the sale at the point at the point of sale, like when the sale is made I'm recognizing the cost of goods sold at that point.
And until then, I'm not recognizing it on my p and l. So you really have to make sure that you're doing your. Accounting on an accrual basis, and you're running your reports on an accrual basis. So if you're buying and selling goods, I wouldn't ever do that on a cash basis anyway.
Dan DeLong (2): Yeah. And and QuickBooks [00:40:00] even tells you, but it doesn't tell you inside of QuickBooks, it tells you on an article.
So cash basis reports are incorrect when inventory items have a zero sales price. So this is one of the, one of the causes of, those things, but also. Just, using, inventory items in general has, because it has to go back to all of that, that the, first in, first out is going back to that start date and all of that recalculation.
It just excludes most of the yeah, most of the, the. inventory activities that they're doing. So they end up having huge discrepancies between cash versus accrual, and then whether or not these these purchases are paid for and applied properly and in the right period. So [00:41:00] that gets really challenging.
So basically, if you're using inventory in inventory items inside of QuickBooks accrual based reports are the only ones that are. Reliably accurate.
Rachel D (2): Yeah. And this example is a really good example because the people might think why would I ever have a zero sales price?
It happens all the time because, I can't really read that. But if you're pulling something out of inventory, like for a sample or a complimentary thing or whatever, or you're u like say you're using them in your business, I have a. Hair salon and they'll use some of their inventory for to use up in the salon or whatever.
You you, still wanna recognize the cost of the item that you're using up. And so you'd use a $0 invoice and so you, you just, you're, yeah, it's [00:42:00] just not gonna work on a cash basis report.
Dan DeLong (2): Yeah. And one other. Okay. It just reminded me of one other nuance of, inventory, because of this, first in, first out, like all of this, all roads lead back to FIFO here, with regards to the nuances because of the first in, first out.
The ability to make cost or value adjustments on your inventory is increasingly more challenging. Doesn't mean it can't be done and it doesn't mean that there aren't workarounds and we're not gonna talk about any of those workarounds. I dunno how to do
Rachel D (2): it. I don't, I dunno to
Dan DeLong (2): do it
Rachel D (2): and don't tell me how I don't wanna know.
Dan DeLong (2): Is that makes it much more challenging to do cost adjustments. To say at a, at any moment in time, this is the value of these inventory items. You'd have to do a transaction to do that, and the cost or value adjustment, which is in QuickBooks Desktop [00:43:00] to be able to do that. The only adjustments that you have inside of QuickBooks online when it comes to adjusting inventory is a quantity adjustment.
And because it's first and first out, it's going to be using. That as its guidance on what is the value of that quantity adjustment, because it has to go back again to that start date, figure out what the value of those inventory items are at that moment in time, that you do that in order to make associate the value of that quantity adjustment.
So there isn't this option of creating a value adjustment or a cost adjustment. If. Your inventory costs have gotten out of control because you've mistakenly put a decimal point. Yeah. You'd wanna find the source transaction that cau that caused that to happen and modify that in order to make that change.
Rachel D: Yeah.[00:44:00]
Dan DeLong (2): You are supposed to say something then.
Rachel D (2): Yeah. Yeah. Always With the original purchasing source documentation, always. The only time I ever would do inventory adjustment is when it actually needs to be done at month end, quarter end, year end. If there's breakage, loss, or. Something actually needs to be adjusted.
Final Thoughts and Upcoming Topics
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Dan DeLong (2): All right, that is as much as we could cram into 45 minutes of a workshop with regards to the subtle nuances of inventory management inside of. Inside of QuickBooks online. And we have had a variety of inventory discussions and various other things that we've done on workshops.
And coming up at the end of this month we're gonna have a new we player in the inventory management space settle along Oh, [00:45:00]
Rachel D (2): yeah, And talk about
Dan DeLong (2): their uniqueness in the inventory management space. So look forward to that. It's so
Rachel D (2): cool. But I just wanna add one last thing.
Just for anybody that may be watching this now or later and, watching a recording of this. There, I have not met anybody that has a, stronger grasp on QuickBooks Desktop and QuickBooks Online venue. Okay. So if anybody really needs to understand like the inner workings of QBO, especially as it pertains to inventory, there is nothing more difficult than you that you can do in QBO than inventory.
And especially if you're, having to go back and look at historic and fix something or hunt for something or whatever. Don't waste your time. [00:46:00] Sorry, Intuit calling support your. Quick answers like Go to school of bookkeeping. I'm telling you, just do it because you really know your stuff when it comes to this there.
Nobody knows it better than you.
Dan DeLong (2): Thanks, I appreciate that. I think it's part of the history. Yeah,
Rachel D (2): but I have to say this stuff because I, when I was first trying to figure out a lot of things, a lot of I'm an accountant, I understand accounting, but. Really have as firm grasp on the software and what it does and how it does.
It took me a while to get used to it and I wasted a lot of time and so I always would like to point people right to the waste. Don't waste your time. Just go straight here.
Dan DeLong (2): Don't, learn from my mistakes.
Rachel D (2): And that's.
Dan DeLong (2): And that's really what I've done over the course of 20 years is made a lot of mistakes.
Yeah. In order to get some valuable lessons
Rachel D (2): and all that. Yeah. [00:47:00] So really like my
Dan DeLong (2): time in the point of sale and retail, that was that was definitely a, learning by fire.
Rachel D (2): Yeah. And I don't think there, if anybody had even the most complex question of. Screwed up inventory valuation within QBO.
I don't, there, I don't think there's anything you couldn't figure out.
Dan DeLong (2): There's a will, there's a workaround. Yeah. And we'll we'll figure it out. Appreciate that. Thanks again for joining us today and next week we'll be talking about. It's the death of tags. So we'll talk about the migration process for for tags inside of QuickBooks Online and, what it means for for those people that were using them and want to use them in the [00:48:00] future.
Until then have a great day and we'll see you next time on the workshop. [00:49:00]
