 QuickBooks Desktop 2023 Bank feeds, purchase inventory, periodic and perpetual systems. Let's do it within 2-its, QuickBooks Desktop 2023. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Here we are in QuickBooks Desktop Bank feed practice file. We started up in a prior presentation going through the setup process we do every time. Note that the homepage isn't maximized and I've changed the settings to do that by going to the edit drop down preferences and then in the desktop view. I changed it from multiple windows to one window and we're going to then close that back out so I can toggle between the windows with the open windows on the left. Reports drop down company and financial profit and loss standard. Let's change the range. I'm going to go from 010122 to 123122 and then customize the report to go to the fonts and numbers changing the font up to 14. OK, yes and OK reports drop down again company and financial this time the balance sheet. I'm going to go to the customizing to change the range from 010122 to 123122 and then fonts and numbers changing the fonts to also 14. OK, yes and OK opening up the bank feeds now banking drop down bank feeds we got the bank feed center only there if you have bank feed setup which we do which we did in a prior presentation. So I'm going to go into the unrecognized area here now we're linked we're thinking about inventory purchases just a quick recap on the complexities of inventory. If I go back to the home page noting that our goal is to try to automate as much as possible inventory typically throws an accrual wrench into the system messing up both the vendor side outflows of cash ultimately for the purchase of inventory and the customer or revenue side the inflow of cash for the cell of the inventory. So typically there's three ways that we can kind of deal with inventory that you might want to be considering last time we entered a transaction for the first and easiest way which would be I'm not even going to deviate from the cash based system. I'm just going to record a transaction as it clears the bank when I purchased the inventory using a check type of form but rather with the bank feeds and just record it straight to cost a good sold not recording that at inventory not then having to decrease inventory when I make a sale. And then when I do make a sale I can just record the deposit of income or possibly have the invoice and the sales receipt on the sales side of things are major focus right now being on the purchase side of things. However that would just work though if you don't have a lot of inventory because and if you're doing like a just in time or you're purchasing inventory specifically for a particular client for example. The other methods if you have more substantial inventory tracking needs are going to be a periodic inventory system or perpetual inventory system a periodic inventory system being one where you can track the inventory outside of the system. So we'll enter a transaction related to that with regards to bank feeds then you might still be able to kind of automate the system on the purchasing side of things because when you purchase the inventory. You might just say I'm going to save that vendor use in essence a check type form as it clears the bank and the purchase is going to go straight in to an account called inventory. What it wouldn't be doing if you're using this kind of periodic type of system is then tracking the inventory items in a sub ledger breaking out the inventory items because instead of doing that within QuickBooks you're doing that outside in other software possibly simply Excel or Google Sheets and then periodically you're going to you're going to have to use your outside calculations using the cost of goods sold calculation beginning inventory plus purchases minus ending inventory which you would count to see the cost of goods sold and then do an adjusting entry periodically at the end of the night at the end of the week at the end of the month for example. So that's the second method that will test out and then the third method is the full inventory tracking method within QuickBooks a perpetual inventory system which is going to be more complex with regards to the bank feeds because now you're going to have to set up items tracking the items when you make the purchase of the inventory which you could still do with a check form or a bill form because either of these forms still have an items area which is what you need as opposed to just entering an expense or an account. However the bank feeds are going to have some complexity to track the items and then when you sell the when you sell the stuff you can't just enter a deposit form because you're going to need to enter an invoice in the sales receipt in order to track the items perpetually within the system. So let's first think about that first method we're tracking inventory outside in terms of a sub ledger and then we're just going to record the purchases of inventory to an increase in inventory which we will have the account inventory. So I'm going to say all right let's say let's just I'm going to just pick one of these items I'm going to say let's just use this one I'm going to pretend that this one is a purchase of inventory. So I'm going to type in I mean maybe I had this vendor before I'm going to say primary this time I'm going to say 01 to make it a little bit different of a vendor so I'm going to add the vendor. I'm going to say tab do a quick add of the vendor so quick add it's going to be a vendor so I'm going to say OK and then tab tab and then the account this time last time we took it straight to an expense account which is the kind of expense account costs good sold. I'm going to put it into an inventory account called inventory. Now if you set up your chart of accounts and you assigned a type of industry that has inventory then you might have an inventory account already set up but we're setting up our accounts as we go. So I'm going to add a new account here and then it's not going to be an expense account but rather it's going to be an asset account. An other current asset is not a bank account not an accounts receivable not a fixed asset. It's going to be another and it's current as opposed to other assets other current asset and I'm just going to call it inventory inventory. Hopefully I spell in everything OK. That looks good. I'll save it and close it. So in terms of the chart of accounts now if I go to the list drop down chart of accounts there is our inventory account other current asset. So back to the bank feeds and so there it is. Let's go and hit the drop down right here real quick and look at the more details just to check them out. Notice that we have the date. We've got the memo. There's the vendor we have the account that's going to be hit here. We could say it's billable which means we could use the billable thing to kind of pull it over to something that could be added to the invoice. What you do not see here however is an items tab. Notice we only have expenses kind of tab which would be similar to that check form or bill form that we saw. We don't have an items kind of tab and therefore we can't assign it to the items. So it's not going to be tracking. We can't really track it within the system because I had just assigned it to an account. I didn't use an item which would also track the sub ledger which we'll talk more about in a second. So if I say save it and close it. What's that going to do if I go back to my balance sheet. Well obviously it's we see it recorded here and if I go back to my balance sheet then I can double click on the checking account. We still used a check form. This this one was the $30 one going or 50 going to inventory still using a check form. But it went to the expense side assigned to an account directly as opposed to using items because we didn't have an items in the bank feed thing. We didn't use items which is what we would need to use to track the inventory perpetually instead of periodically. So we're imagining we have then closing this back out an inventory spreadsheet possibly that's tracking the units of stuff that we currently have on hand. And then when we sell that stuff we're going to mark them off as being sold and then we'll count them at the end of the period to determine how much has been sold that would and then we're going to have to do an adjusting entry. So here's the other side in inventory and asset as opposed to what we did last time which was recorded directly to the expense account in profit cost a good sold. So last time we just expensed it before we actually made the made the invoice. This time we're doing the more proper accrual thing although a periodic system as opposed to perpetual at this point putting it in inventory. And then we're going to have to decrease it from inventory when we sell it which we might do periodically by tracking the inventory outside the system counting it how much we have. And then at the end of the day counting how much we have beginning balance plus purchases minus the ending balance the ending count then is going to be the cost of goods sold which we can then decrease the inventory by and record the other side to cost a good sold possibly using a register to do that you can go to for example lists chart of accounts inventory and I could say if this went down to to like $20 worth of inventory whatever you got that conversion between units and dollars. Then I can decrease it here by $30 and record the other side to cost of goods sold. So I've got this extra step that I would have to do which isn't cash related because it's an accrual component within it transferring the inventory from an asset to an expense as we use it as we consume it as we sell it in order to generate revenue. Okay, so then I'm going to close this back out. Also just know when you sell the inventory then under that method you might just wait till it clears the bank will get into the revenue side later but use a deposit form which isn't the natural thing to do but you could do that then that would record income or you can sell with an invoice and a sales receipt and record it there. Note that we might have sales tax issues that we have to take into consideration on the sales side of things which again we'll talk about more later hopefully. So now let's imagine we're going to do a perpetual inventory system we know it's on because we got this line up top we turned that on by going to the edit preferences and we went to the inventory items company preferences turned that check mark on giving us that indication that it is on with this item up top. Now usually this then starts with with the purchase of a purchase order if you're using that which would add another level of complexity which would only be used if you're fairly large company with good leverage requesting inventory before you purchase it. But then typically we enter the inventory either with a bill or with a with a check form so the check form would still be close to the bank feeds. But remember we can't really use the bank feeds over here to record the inventory because I need to track it with items and as we saw before if I go into like this one we don't have anything to track the items. So let me show you what we mean by items to track inventories in the system I got to go to the list drop down item list and then I'm going to set up my item list which will be used to purchase the inventory and also use on the sales side when we sell stuff whether that be inventory or service items. I'm going to make a new item. Now note if I make a service item. It doesn't have to do with inventory. That just is what we would set up to sell services. It will populate if we were to use infant voices or sales receipts. I'm going to look at an inventory item. And so I'm just going to call it let's say it's called an invent inventory item number one. I'll say and I'm not going to add anything more than just the bare bones which is going to be description and then the sales description. The purchase description showing up on the bill or check form sales description showing up on the invoice or the sales receipt. The cost I'm going to say is $30. That's what we're purchasing them for. And then it's going to go to the account of the cost of goods sold when we sell it with an invoice or sales receipt. And then I could use a vendor. I'm not going to choose a vendor the price. I'm going to say this is the sales price. I'm going to pretend we sell it for $60. The $60 will show up on the invoice or sales receipt. The $30 is what we buy it for on the on the bill or the check form. So the income account then we're going to need an income account for it to go to. We only have expense accounts thus far. So I'm going to make a new account when I sell it. It's going to go to an income accounts. I'm going to say it's an income account. Boom. And I'll just call it sales generic income account called sales. Save it. So that looks good. The asset account notice it created another asset account because it usually makes an asset account to track the inventory to. So I'll let it keep that just to show the difference between the two asset accounts that we set up one on the perpetual this on the periodic system. And there's nothing on hand. You've got the reorder point as well. Okay. So if I record that I'm going to say OK. And so I'm just going to say add that. And so there's our inventory item. Now if I go to the home page that inventory item can be used on the sale side and the purchase side. So on the purchase side of things we use a bill or a check form. If I was to use a check form which is similar to the form used when you have a decrease it's the form that is created by the bank feeds. I would now go to the items and then I'd have the inventory item here which would then populate. But I can't really do that if I close this back out on the bank feeds because if I wait till it clears the bank and I look at that item here. It doesn't give me it only gives me like the expense side. It doesn't give me an item's thing. So so I can't really do it that way. So what I would have to do then if I was tracking perpetually is either enter a bill first or a check form first and then use the bank feeds to match to it. So for example let's imagine I used I had a purchase order that we sent out maybe and then let's just enter the purchase order just for the fun of it. We'll say this is going to go to prior primarica we said primarica 01 I'll say and then it's going to be on the date of let's make it 01 02 22. And then I'm going to make the item down here which is going to be the only item we have and it's going to be for $30 and then I'll say that I'm going to purchase this for a particular customer. Let's make up a customer customer customer number one tab. I'm going to set up the customer. And so that's who we're purchasing it for now a purchase order is just a week request for inventory you might not do this step. You might go directly to the bill or the check form. This is an informational form internal form doesn't have any impact in other words on the financial statements. We would be requesting from the vendor which is primarica in this case we're imagining for this number or this quantity of inventory items which would be inventory item number one. Once we receive them we would imagine we get them if we bought guitars we get a box of guitars with the bill in it we're imagining so I can save and close this. And then you would see like if I went to like the vendor center I could see this new this vendor that we had right there and I could see the purchase order. I can also go to transactions and I can track the purchase orders that are outstanding this way as well. So then if I then if I received it with a bill in it I might enter the bill or I could pay it off directly with a check. So this is how the bank feeds fit in now you can say OK where do the bank feeds fit in. Could I could I wait till this clears the bank well I can't really connect the bank feed to the purchase order. So and I and I have to enter a bill or a check so that I have that item field. So let's start with a bill just to imagine a bill. So if I enter a bill and I go bill to primary care it connects to the purchase order. So the system is saying hey we got a purchase order. So I'm going to say yes let's connect the purchase order. So now this is primary care looks like a check but this is a bill form now. And so the amount down here notice it's not going to the expense side of inventory but rather to the item the item will tell it to do the transaction which will still go to an increase in inventory. Asset account because the item is telling it to do so. But if I use just the expense account it won't then track the sub ledger. We also assigned it to a customer and made it billable which is a nice tool because then it allows us to see that we bought it for a particular customer turn around and then create the invoice from that. So if I say save and close let's see this transaction if I go to the balance sheet. Now we've got the inventory asset account which is a little bit if I go into that there's the bill. The bill doesn't have anything to do with cash so I can't really make that with the bank feeds. The other side went into accounts payable account which is an accrual account and there is our bill closing this out closing this out. And then we also note that the inventory now is going to be tracked in a sub ledger reports drop down and then we can go to the inventory inventory valuation summary. Let's make this as a 1231 to 2 customized the report fonts and numbers I'll bring it up to 14 so we could see it a little better. And so now I'm tracking the actual items of inventory. This is this is what we didn't have in the other method but would have to be tracking off or out of QuickBooks on a periodic system. Now we're tracking it on a perpetual system. This $30 cost should match what is on the balance sheet all the time if everything is working as it should. So now how how do the bank feeds fit into this. Well if I go to the bank feeds now I can pick let's imagine that this was the transaction. I know the date I entered the dates kind of for far away here but let's imagine this is the transaction that should be matching out. Now sometimes the system might be able to recognize that you had a bill that was tied to it and you can and it'll it'll see. Hey look this transaction is tied to that because I entered them in reverse order it's less likely to pick that up. Now we could also say when I pay the bill you might pay it using your accounting system and then match to the check. Or we could imagine that we're going to say let's hit the drop down and then I can add more details or go directly to match. Either way I go into this same screen but I got these two items up top. If I go to match then it sees the match right here. Here's a bill and I could record this transaction to enter a payment to the bill directly. So in other words if I check this off that'll make a check type of form that will decrease the checking account. The other side decrease in the accounts payable and so I can say okay let's save that one. Two of them have been recorded. Out of the balance sheet now I've got the accounts payable back down to zero with the actual check. Notice it made a kind of check form but a special check form which is called a bill payment form. And then the other side went to the checking account up top and the checking account double clicking on that. We've got that bill payment form right here. So that's one way the bank feeds can kind of connect into that type of system. So notice that nothing has happened on the income statement yet with the inventory because we haven't sold it. Now if I take this to this natural next step when we sell the inventory we'll talk more about selling inventory in the future but just note I'm going to have to use a sales receipt or an invoice because I can't just use a deposit form. I can't just wait till it clears the bank because I won't be able to tie it out to the item. So if I create say an invoice for example and I bring this to this customer number one because I used a billable item QuickBooks has connected it and I can then say okay let's pull this over from the items inventory items and then pull that in. Now it's going to populate my invoice driven by the item which we told it to charge people $60 for. Now this invoice is actually quite complex. There's a lot going on with it. It's going to be what's it going to do? Well it's going to increase. I'm just letting it go on the dates here. Well I'll just keep it there. So what's it going to do? It's going to increase the invoice accounts receivable because it's an invoice. The other side is going to go to the sales which is driven by the item, the sales account that we set up and then it's also going to have a decrease to the inventory. $60 but I believe for the $30 that we told it to have for and then the other side is going to go to cost to goods sold. Also you could have sales tax kind of in the mix here which we didn't set up. We might talk more about sales tax later but if you're using this perpetual system then the system could be set up to calculate your sales tax fairly easily within it as well. So let's save it and close it and I'm not going to email it so I'm going to uncheck these items and then save it and close it and then I'll go back to my balance sheet. So now the inventory items, let's customize this one and I'm going to go into the advanced so I can see my two and I'm going to see everything that's active. Okay, so that gives me my two inventory accounts. Here's the one that went back down to zero. So it went in and out, went out with the invoice on a perpetual system. The other side then going to the profit and loss. So now we've got our cost to goods sold again. We got two accounts. One is on a perpetual system. The other was when we used the periodic system and then we also have our sub ledger of inventory which is back down to zero because we sold that only one piece of inventory that we had. Now you could do this with just a check form as well. So if I went back over here instead we could make a purchase order or no purchase order and then instead of entering a bill, we're just going to pay it with a check directly when we buy the inventory. We still can't use the bank feeds which basically makes a check form because we can't track the item. So let's just let's do this first. I could make a check and then use the bank feeds to match to the check. So for example, I could say let's make a check. I'm not going to have a check number. I'm going to make it on, you know, 1017 whatever. And then we'll say that the payment is going to go to Primerica 01 again for the amount, let's say $50, which I think matches one of the amounts that clears. That's why I'm using 50. And then I'm going to set up an item. Let's just make another item. I'm going to say new item. Notice you can make up items as you go on the fly as we're flying. So it's going to be an inventory part. I'll just call it item. So let's call it in item two. And then I'll just copy that and put that down here. It's going to be cost when we buy it. It's going to cost $50 and cost a good sold. That looks good. We're going to sell it for $100. Let's say again. So the account is going to be sales when we sell it. It's going to have to go to the inventory account when we when we increase the inventory asset account. Notice I could change the cost of goods sold. I have two down here. So I could choose the one I want and not have two of them clearly. But I'll use that as a distinguishing factor between the accounts. So then we got inventory on hand as of date. So that looks good. I'll say save it. So there it is. This is going to decrease the checking account. The other side going to the inventory and the sub ledger. Save it and close it. Go back to the balance sheet. Checking account. Now we've recorded this item, which doesn't have the little thing here because we didn't tie it out to the bank yet because we recorded the check independent from the bank feeds. Double-clicking on that. There it is. Closing this back out. Closing this back out. The other side is going into inventory. There it is in inventory. We use an item. Therefore it should be on the sub ledger. So if I go to the inventory sub ledger, it's tracking it on a perpetual system. Then when the amount clears the bank feeds, I could match it. So I could say, let me check it this way. And I say this one, let's imagine this is the one that matches, which the dates are backwards. So that looks a little funny, but it is what it is. See if I could still match it. But we've got, we've got that one. And notice it might pick it up automatically if I didn't have the dates backwards. If I entered it in the proper order, right? I entered the transaction and then it cleared the bank. But if I hit this drop down and say match to an existing transaction, then it doesn't see it because of the date. I think, let me go back on over to the, to the balance sheet, go into this. I'm going to change the date from 1017 back to, let's say, let's just make it to 080122. And then I'll say save it and close it. Yes. So now the date should happen before it clears bank feeds. And then I'm going to go boom. And then this one, let's see if I can say edit match to existing, still not pulling up. Why? Oh, the other thing here is I've got the last 30 days versus show all. So I'm going to show all because the last 30 days would work quite well if you're working real time. But because I'm doing example problems and my dates are all over the place, I'm going to go over here. So there it is. So there's the 50. I'm going to check that off. And this then isn't going to record anything new because the check has already been entered. All this is doing is saying, yes, bank, I see that I recognize that when cleared the bank. I already entered it into our system, which is good because it's a matching tool that will help us with our bank reconciliations possibly. And so it's still useful, but it's not creating the transaction in this case. So if I close that out, if I go back to the banking and I double click on the checking account, you can see that that that now has, I think it was this one now has the little lightning bolt, meaning we use the bank feeds to match it. Not to record it, but it's still kind of tied out for my bank reconciliation purposes. And so I close that out. So those are the couple of different ways you can see how inventory will kind of feed into the system. So just a quick recap. When you buy the inventory, you could try to expense it as cost of goods sold at the beginning, stay in a cash based system. But that's, you can't do that all the time. You might then go to a periodic inventory system tracking inventory in a separate software or Excel or Google Sheets. And then when you record the purchase in the system, you could still use the bank feeds. But if you increase an inventory account, you're going to have to do a periodic adjustment when you count by counting the inventory. Or you could do the full service inventory tracking inventory in the system, which means you have to set up your items in order to to not just record invoices and sales receipts, but also to record the purchase of the inventory. You get the sub ledger that will then be tracked within the QuickBooks system, which complicates the bank feeds and being able to build your system just with the bank feeds, because you're going to have to use forms that might have an accrual component to them. And you're going to have to use the items so that you can track the inventory and the sub ledger properly on a perpetual system.