 Zero Accounting Software 2023 Enter Transaction for the Purchase of Inventory Using Bank Feeds Overview Get ready to become an Accountant Hero with Zero 2023 First, a word from our sponsor Well, actually these are just items that we picked from the YouTube Shopping Affiliate Program But that's actually good for you Because these aren't things that were just given to us from some large corporation Which we don't even use in exchange for us selling them to you These are things that we actually researched, purchased, and used ourselves Focusrite Scarlett Solo 3rd Gen USB Interface with Software Suite I've been using a Focusrite for years for my audio needs Before which time I had a USB microphone which plugged directly into the computer But I think you'll find, as I have found, if you want to increase the quality of your microphone You will need an interface and the Focusrite is the go-to interface As far as I'm concerned, I've been using this for years now It works well, it's easy to use, it seems quite durably built Because I only do the screen recordings, I only need the one solo interface However, if you have multiple microphones you need to plug in Or if you have other instruments you need to plug in You can look at a similar model that has more input ports If you would like a commercial-free experience Consider subscribing to our website at accountinginstruction.com Or accountinginstruction.thinkific.com Where we have many different courses you can purchase one at a time Or have a subscription model giving you access to all the courses Courses which are well-organized have other resources like Excel files And PDF files to download and no commercials Here we are in our Custom Zero homepage Going into the company file we set up in a prior presentation The bank feed file We're going to be duplicating some tabs to put reports in Like we do every time, right-clicking on the tab up top So we can duplicate it And then we're going to right-click on the tab up top again And duplicate it again Back to the tab to the middle Accounting drop-down We want to open up the major financial statement report of the balance sheet And then we'll tab to the right as the balance sheet is thinking Accounting drop-down This time the income statement The other financial statement report Let's go back to the balance sheet The date looks good for us Because the data I am uploading will be in 2022 For the income statement I'm going to bring it back to 2022 Because that's the date of my data input So January to December Let's just say of 2022 And update So this is what we have thus far Let's go back to the first tab now I'm going to go into the bank feeds We've uploaded the bank feeds in a prior presentation Therefore, if we go to the accounting drop-down in our bank accounts We've got the bank information here Drop-down on the manage of the account I'm going to the account transactions That'll take us to the detail of the bank feeds We are focused on the reconciliation process And we are primarily building our financial statements Directly from the bank feeds Therefore, we have the information from the bank on the left And we're in essence creating the transactions on the right as we go Now we want to think about inventory Inventory often being kind of a wrench in the system One of those things that kind of stop the cogs from moving Sometimes when we are trying to build a system That is just constructed from the bank feeds To think about that and how we can deal with it Let's take a look at our flow chart This is a QuickBooks desktop flow chart From the home page of the QuickBooks desktop But we're just looking at it as a flow chart Because the accounting flow will be the same Basically for every kind of accounting system in general So we're looking at inventory now And thinking why is inventory kind of a problem And then how can we basically deal with the inventory Now there's two The inventory actually goes through two different cycles Because of course we purchased the inventory Which means it's part of the vendor cycle In other words cash is going out At the end of the vendor cycle for the purchase of good services Our assets inventory And then of course we're going to sell the inventory And that's going to be part of our revenue or income cycle We're at the end of the day We expect money to be coming into our account For the sale of goods and services In this case goods So obviously what happens from the banking side of things What's going to happen on the bank statement Is when we buy the inventory We're going to see a decrease to the checking account And when we sell the inventory We're going to see the increase to the account For the sales price of the inventory The problem happens when we're trying to track the inventory As an asset As opposed to just simply expensing it When we purchase the inventory So let's think about the easiest ways to deal with inventory To the more complex ways to deal with inventory Because the easiest way we could deal with inventory Is we could try to stay in a cash based system Right, there's problems with that But that's the easiest thing we could do If we can't stay in a cash based system Then we might use some kind of periodic inventory system Tracking inventory outside of the zero accounting system In an Excel sheet or something like that And making periodic adjustments And or we can actually track the inventory On a perpetual inventory system within zero Which is typically the most complex type of inventory system Alright, so the easiest kind of inventory system We try to just keep on a cash based system So note that that would only work If you're only holding onto minimum inventory So if you're in a system where you're like Doing custom projects or something like that And someone wants something You say, I'm going to buy the goods that I need The inventory I need and make any adjustments to them And then sell it right away Then you have inventory But you're turning the inventory over You're selling it so quickly That you're not holding onto it And you might be able to get away in some circumstances With simply a cash based system Make sure to run this by your CPA firm Or something like that It's your tax professional And make sure you're in compliance With whatever you need to do For whatever reporting purposes you need Such as taxes or external reporting purposes But that would be obviously the easiest thing to do So that means that If you were trying to stay in a cash based system With the bank feeds on the purchase side You can wait till something clears the bank And you'll pay for it And then when you record it as a decrease To the checking account The other side will just go to cost of goods sold expense Noting that you will be recording cost of goods sold Before you actually sell something But then shortly after that time You will make the sale After you've done whatever you need to do To then make the inventory sellable You're going to sell it And at that time You could wait till the deposit clears the bank If you actually made a sale to someone They paid you And you're trying to say on a bank feed Generated reports You can wait till it clears the bank And record in essence the deposit as revenue In that case then You wouldn't have to deal with on the sale side The reduction of the inventory That cost of goods sold And tracking the asset of inventory Alright, but If your inventory is significant at all In dollar amount Then you don't really want to do that Because what you want to be able to do Is track the inventory that you're holding on to As an asset In a similar fashion as we talked about With the equipment And then when you sell the inventory You want to decrease the inventory And record the related expense Cost of goods sold When you sell the inventory And that way You're matching the expense The inventory that you purchased On the income statement In the same time period that it was consumed It was used lowering inventory You sold the inventory in order to record Or generate sales So that's the general idea Now you could do that two ways You could use the full-service perpetual inventory system Within zero But that takes a lot more work to set up And it puts a bigger kind of problem point Into dealing with the bank fees to some degree So you could do that Or You could try to track your inventory externally On something like an Excel worksheet For example And then you might make periodic adjustments to zero On a daily, weekly, or monthly basis So in that case, for example On the vendor side You might purchase the inventory And then whenever you purchase the inventory Instead of recording it As it goes to the bank feeds Instead of recording it as Cost of goods sold You record it as inventory the asset However You're not tracking the inventory Within the zero accounting system In other words You didn't put an inventory item in place You're not generating any reports within zero That track the units of inventory You're only dealing with a dollar amounts of inventory As you purchase the inventory You will have to track the units of inventory On a separate sheet So when you buy five units of inventory You will track them on Excel Or something like that Or if you're using a Shopify platform Or something like that You might be tracking them in Shopify Or something like in units And then you're typically going to want to do some kind of Flow assumption So I won't get into that in detail Because that's a whole course in and of itself But you're talking first and first out Last or weighted average Usually those are the two main ones Or last and first out But those are the two main ones The first two And then what you'll do is You'll count your inventory periodically At the end of the day At the end of the week At the end of the month See how much you sold Meaning you take your beginning inventory Minus your ending inventory And as in beginning plus purchases Minus ending Will give you your cost of goods sold And then you can make adjustments To the dollar amount in the zero system Periodically So that you tie out to what you have On your external sheets So then you just decrease the inventory Record the cost of goods sold On a periodic basis When you actually sell the inventory Again, you can kind of stay in a cash based system If you wanted to Meaning you could wait till the deposits Clear the bank And still record the deposits As just revenue And that way What you're not doing Is you're not recording the cost of goods sold At the point in time That you record the revenue But instead Doing adjusting entries At the end of the day, week, or month In accordance with your External periodic depreciation schedules In Excel or something like that So that's method number two Method number three As a full service inventory tracking system Within zero So that you're not only tracking the dollar amount Of inventory on the balance sheet And the cost of goods sold on the income statement But also making a separate schedule Which also tracks the units of inventory That you are purchasing Now remember that if you're dealing with inventory Zero has a pretty nice inventory tracking system But it's not the most advanced inventory tracking system So especially if you're using Something like a Shopify or Amazon That kind of business Then you might not want to track inventory On a perpetual system Within zero because you might be tracking it Using these other platforms So you want to think a lot On what your inventory tracking system is going to be And then how you're going to utilize zero within it But if you track inventory within zero That means that when you purchase the inventory Now you have to not only record the account But also the item of inventory Which adds a level of complication Because you need to set up your inventory items And apply whether they're going to be taxable or not And then have an item That you're going to be tracking When you record the inventory So that when you buy the inventory It's going to increase the inventory account And create a sub ledger tracking by inventory And then when you sell the inventory You have another level of complication So it's going to be a lot more difficult to wait Till something kind of clears the bank And then just try to record revenue As it clears the bank Because you're going to have to track the actual thing That was sold The unit of inventory that was sold Using the items So the items become important Because the items are going to be the things That are going to allow you to track the units of inventory So that's the general idea So let's just take a look at an example here If I go back over I'm in my bank feeds again So I'm in the bank feeds I'm just going to look for a transaction on 817 That we can mess with here This is a Primerica transaction 817 Okay, so let's imagine we're just going to use the easy method first And then we'll take a look at some more The other two methods later The more complex methods So let's say that we have Primerica 01 So I'm going to copy the vendor I'm going to put that here Primerica 01 And I count I'm going to have to add the details So let's go ahead and add the details here And so Primerica reference And so notice you do have the capacity to add an item So if you were dealing with inventory items Then you have your capacity to deal with the items Which might help you to implement the tracking of the inventory As you use your bank feeds But it's still going to add some complications We'll talk about that later Here we're going to not track the item We're not tracking the inventory on a perpetual system In other words, at this time We're not going to be recording it to inventory the asset But instead we're going to imagine We're just going to expense it to cost of goods sold So here's our cost of goods sold account And so there it is Now if I record this transaction We're going to have a decrease in inventory The other side goes to cost of goods sold Now what's the problem with that? The cost of goods sold is being expensed Even though it's not tying to the related income yet That's why we usually put it on the books as an asset And then expense it when we use the asset And record the cost of goods sold related to the inventory The revenue that was generated from the sale of the asset However, if I don't have a lot of inventory on hand And I'm going to turn around and sell this item I'm going to mark it up to whatever $100 and then sell it Really quickly I don't have a lot of turnover There's a high turnover I don't have a lot of inventory I'm holding on to Then you might be able to get away with in essence a cashed based system That we're talking about here Now if you were going to do this all the time And this was your major vendor that you bought inventory from This is your standard method You could create a rule for this just like we did in the past You could go up and say I'm going to make a rule for it And then make this your standard rule That you're just going to expense these purchases to cost to goods sold And then when you make the sale You're just going to record You could wait till it clears the bank feeds as revenue And record the sale or the deposit to revenue And that way when you make the sale You don't have to deal with cost to goods sold Because you already expensed it When you purchased the inventory Now again, that will be a problem You can't do that If you have a substantial amount of inventory you're holding on to For example And so that would only be applicable or possible in certain circumstances Alright, so let's go ahead And I'm going to go ahead and record it So let's save the transaction That will record it And then I can match the transaction So now we have the matching there This will reconcile it So now if I go to the balance sheet We have recorded it So if I update the balance sheet And I go into my liability of the checking account Because it's at a negative balance at this time Which is quite disturbing But that's okay Because we just haven't entered the beginning balance yet Our business just isn't rolling yet Any second now The business is going to start making millions Alright, so in any case This is going down There it is right there It's a spend money form Just like normal If I go back to the balance sheet We didn't record the other side as inventory It's on the income statement Updating the income statement And we just expensed it as cost of goods sold Again, that looks funny right now Because there's no income related to it Because normally we wouldn't have costs to goods sold Unless there was income So the next thing that would happen Is we would make the sale And that might come through with a deposit form And that would match out To the cost of goods sold Alright, just to If I go back to the first tab Just note that we have If I look at the Account transactions We've been building our account transactions Which are now reconciled in here So we've been making these transactions As we go and tying them out to the bank Which is a part of our bank reconciliation process Our bank statement items have already been there And we're just ticking them off As having been reconciled As we create the transactions Then if I go to the contacts And look at our contact drop down We can see that we have also been constructing Our contacts as we go And if I go to the accounting drop down And take a look at our chart of accounts We have been constructing Our chart of accounts has been growing As we've been doing our data input In basically a customized type of format Alright, let's open the trial balance Just to see where we stay and tab Into the right, right clicking Duplicate And we'll go to the accounting drop down Dropping down to the accounting That's the wrong thing I want to go into the reports Dropping in, man Dropping into the half pipe This is a trial balance Trial balance And you got to You can't have any fear when you're dropping in You got to just You're just dropping into the accounting I don't know what I'm talking about This is where this is the balance sheet On top of the income statement So we've been doing our checking account The equipment cost to good sold utilities And the telephone as of this point in time