 zero accounting software 2023 purchase of inventory using bank feeds periodic method versus a perpetual method of tracking the inventory get ready to become an accountant hero with zero 2023 here we are in our custom zero home page going into the company file we set up in a prior presentation the bank feed file we're gonna duplicate some tabs to put reports in like we do every time going up top right clicking on the tab and duplicating it and then we'll right-click on the tab again and duplicate the tab again let's go back to the middle tab accounting drop-down we want to open up the balance sheet report and then we'll tab to the right accounting drop-down open up the profit and loss report and then on the P and the L I'm gonna do the date range chain bringing it back to 2022 which is the same date range as our data input from the bank feed so I'm gonna go to January 2022 it should be and then December of 2022 and the end of it and we will then update the January didn't take it didn't take just impacted on the surface so there we go we're gonna update it all right and so then we're gonna go back to the first tab here and now we're gonna go into our accounting drop-down let's go to our bank accounts this is what happened when we uploaded the bank feed information we've got our bank account drop-down I'm gonna go into the account transactions and then we're gonna go into the reconcile tab so last time we talked about the different methods that we could use when we have the inventory noting that inventory kind of throws a wrench into the system we talked about last time the idea that if we have a little bit of inventory we can try to stay in a cash-based system which will allow us to continue with our strategy of attempting to create our financial statements directly from the bank account data but now let's think about a perpetual inventory system and a periodic inventory system so first we'll do a periodic inventory system so I'm gonna go down imagine that we are paying for inventory again so I'm gonna pick pick one of these items down here all right so we'll pick this one here now note last time we simply recorded it to cost of good sold so now what the system is doing what zero is doing is memorized this transaction it pulled it up from the memorized transaction we didn't make a rule for this one but we have clicked down here that we want to adjust the previous entries if I uncheck that then we don't see that blue box there anymore now note you might actually want to turn that blue box off because that will make it easier for you to make sure that you are actually setting up the rules to be exactly what you want right because that's gonna make it less likely that you make a problem so I've unchecked that box and now we don't see anything here all right and so then I'm gonna hit the details drop down and let's imagine we have a periodic inventory system and we're purchasing the inventory so I'm not gonna track the item again the item represents us tracking inventory within the system which would track not only the dollar amount going to the inventory but also the units creating another sub ledger that creates more complication to track within the system so this time we're gonna say I'm just gonna record it as an account here but instead of recording it to cost of good sold and expensing it I'm gonna put it on the books as an asset and then I will track the inventory in a physical unit method but not use the items within zero to do that instead doing it in Excel which gives me more flexibility to track it in Excel for example and then just simply do periodic adjustments into the system so I'm gonna put it into an inventory account we don't have an inventory account so I'm gonna make an account like one three zero zero let's do so add an account I'm trying to think of the account number one three zero zero let's say it's gonna be a type of account which is gonna be a current asset so we'll pick that up our current asset type of account name I'm gonna call it inventory I'm gonna call it inventory like one this time because we might want to when we do the perpetual inventory method track it in another account so we can see how the sub ledger works possibly so we'll say inventory one description that looks good all right so if I record this what's it what's it gonna do it's gonna increase the asset account of inventory instead of cost of good sold and of course decrease the checking account but we won't have a sub ledger tracking the units of inventory imagining the units of inventory being tracked outside of the system all right we'll save the transaction and then let's go ahead and match the transaction so we are imagining the purchase of inventory balance sheet account updating it we've got the inventory is now on the books as an asset here now remember this is it seems obvious but it sometimes it's easy to kind of forget that clearly the balance sheet is being reported in dollars obviously the inventory itself is in units so if we have five units five widgets of inventory they have like a $10 cost right so we have so we so we have to have that conversion thing of converting the units to dollars now that becomes kind of an issue especially when we're buying the same units of inventory over time as we have inflation typically and the unit cost goes up right because then when we sell the inventory we're faced with the problem of which inventory unit did I sell which is the proper cost to apply to it that's when we have to deal with that flow assumptions like a first in first out or weighted average which again you might do externally in like an Excel worksheet or something like that now the other side of course decrease the checking account there's no impact this time on the profit and loss or income statement we didn't record the expensive cost of goods sold when would we were we record the expensive cost of goods sold when we sell the inventory now note if you're using this method then the next things that will happen with regards to that inventory is you're going to sell it at some time in the future right when you sell the inventory you could do it using an invoice form or a spend money form if you're using the actual bank feeds to record the sales side of the transaction you will receive the money and the bank feeds over here right and then when we get the money in the bank feeds we could record simply that as revenue we could just record it as revenue when we get the money so if you do that then when you get the money and record the revenue you're going to record just revenue and not cost of goods sold we're just going to see an increase in revenue on the income statement when are we going to record the cost of goods sold we will do it on a periodic inventory method meaning if I go back to the balance sheet over here what I would do under this method is continue to record every time I purchase inventory to an increase to this inventory account in dollars I'm not tracking it this units within zero but I am tracking the units outside of zero in Excel so for example whenever I purchase something in Excel I'm tracking the unit increase and I can do my cost of goods sold calculation in Excel I can take a physical count of the inventory and then take my beginning inventory plus my purchases physical units minus the ending inventory that I get from a physical count and that will tell me how many units of inventory