 Here we are in our custom zero homepage going into the new company file we set up in a prior presentation that being get great guitars we're going to duplicate some tabs to put reports in like we do every time right click on the tab up top to duplicate it right click in the tab up top to duplicate it duplicating the duplication process then back to the tab to the middle as the one to the right is thinking accounting drop down we want the balance sheet report the big balance sheet we're going to tab to the right accounting drop down again this time the income statement or the profit and the loss the profit and loss we've got 2023 is the year we're working in nothing yet happening on the income statement with the balance sheet we've got those beginning balances let's change the range up top i'm going to put a custom range and we'll go to 2023 and the end of 2023 that's what i want update it okay so that looks good so thus far we have entered the beginning balances imagining we pulled them in from a prior accounting system then we talked about some transactions that are often the case or necessary when you first start the business financing transactions such as getting cash possibly through a loan from the bank or from yourself the personal cash going into the checking account in order to get the money to then buy furniture and equipment the fixed assets that are going to be necessary and to do whatever we're going to do in our case sell guitars and that would mean buy an inventory as well as doing guitar lessons that we're going to have and that's going to help us to generate revenue in the future so now what we're going to do is start to buy inventory so we bought fixed assets now we want to buy inventory because we're going to sell actual guitars here so when we buy inventory i'm going to go to the tab to the left to facilitate the transactions remember there's a couple different ways with inventory you can you could deal with the purchase of inventory back to our flow chart this is from quickbooks desktop but we're just using it in order to look at the normal flows through the accounting cycle here so and i think this is just a good flow chart so when we deal with inventory we've got the purchase of inventory so it's going to be involved on the expense side of things when we buy the inventory which is what we're going to be doing now and then it's also going to be on the customer side of things because we're going to have to decrease the inventory when we sell the inventory in other words normally inventory is going to be one of those accrual kind of things kind of like the fixed assets where we have to deviate from a cashed based system because we can't just simply expense the inventory when we purchase it because the general idea would be that we want to line up the expense of the inventory called cost of goods sold and the same time period as we sell the inventory which adds another level of complexity to our accounting process now you could try to get around that you could say hey i'm just going to stay in a cashed based system and i'm not going to deal with the accrual component of tracking the inventory when i buy the inventory i'll wait for it to just clear the bank possibly and the and the purchasing side and i'll just record it possibly through the bank feeds to cost of goods sold right when i purchase it and then when i sell stuff i'll just record the revenue side at the point in time i sell it and the timing won't be quite right but if you have very little inventory and you have a justin chime kind of system or you make custom stuff for example and and therefore you you're buying the inventory for a particular project then you might be able to get away with that and that's not and you might that might work but if you're buying inventory and you're holding on to any significant amount of inventory then you're going to have to manage the inventory that you're holding on to and if you just expense the inventory when you purchase it you don't have the inventory on the books to help you to manage the actual inventory the assets that are on the books which can be significant and you have a matching problem in terms of your income statement because you're not actually recording the expense of cost of goods sold in the same time frame that helped you to generate the revenue therefore we typically have to put the inventory on the books as an asset when we purchase it which is what we're doing here and then when we sell it that's when we have to decrease the asset and record the expense of cost of goods sold when doing that we could do that either using a periodic inventory system or perpetual inventory system if we use a periodic inventory system we wouldn't set up inventory in the zero system but rather track the inventory in excel or some other spreadsheet programmers or inventory management program and then just make periodic adjustments into zero that's one method that can work and you can do a physical count at the end of the night week or month in order to make the adjustments necessary the other method is to track everything within the zero system on a perpetual inventory system which is what we are doing here which means when we purchase the inventory we're putting on the books as an asset and tracking the sub ledger when we sell the inventory we're going to be recording the sale side and the cost side meaning decreasing the inventory and recording cost of goods sold at the point of sale all right so that's what we're going to be doing we're on the purchasing side of things here so the first form that you might have in the purchasing cycle is a purchase order however this would only be the case in certain circumstances you might for example be in a situation where you're just buying the inventory uh and and you have to pay for it at the point in time you purchase it in other words oftentimes when I buy something online at like an online store I pay for it at the point in time I request the inventory and and so that's different than a purchase order if you're on a purchase order we're sending out the purchase order let's say we're we're imagining we're going to buy 20 guitars and I'm sending out the purchase order and they're actually going to send me the guitars before I pay for it and so you can see in that kind of situation there's got to be a lot of trust on the vendor side of things with you you have to have a lot more power on the purchasing side in order for them to actually ship the inventory before you pay them so so that would have to be the kind of the scenario if that is the case then you enter the purchase order which is a strange form also because it doesn't actually have a financial transaction related to it there's no impact in other words on the balance sheet and income statement although we still want to track it because when we receive the guitars the inventory then we want to compare what we got to the purchase order to make sure that everything is proper and then we've recorded as a bill or we pay it at that point in time so that's what we're doing now purchase order all right so let's do it we're going to go back on over now note that we set up the uh the products and services so usually if we're track obviously if we're tracking the inventory we have to have set up our products and services here and so that we can track the inventory through the purchase order but they won't actually hit the books until we've received the inventory and we'll create in essence a bill or pay or just pay directly from the purchase order all right so let's go up to up top enough talk action we need action here now you can go into the purchase order a couple different ways you can go into the drop down here these are all the normal transactions so now we're in the normal course of transactions we expect to be buying inventory often therefore there's a form in zero specifically for the purchase of inventory you could also go into the tracking of the purchase order area in the business drop down and purchase orders and so this is where you know we're going to track our purchase orders and we can go into here and say we want a new purchase order all right and then we're going to purchase this one from our one vendor so far we buy our stuff from fender or no we buy it from epiphone epiphone so if i start typing that in epiphone populates we're going to say the date is going to be 01 slash 12 let's say slash 23 and delivery date so you can pop you could populate the delivery date if you have that you got the purchase order number being generated from the system i'm going to keep that i'm not going to have any reference number the theme represents the kind of the template so we're going to use the standard template here we're going to be doing this in us dollars and amounts are taxed we're not going to be taxed on the purchase so i'm not going to have any tax on the purchase side in this case and then i'm going to choose the items now note that you could if you don't have your items set up just put a description of what you're doing but if you want to track the inventory you have to have the items set up which we set up in a prior presentation so i'm going to have an elp so there's an epiphone lustpull that we're purchasing from them we're going to say that we purchase 20 of them notice the cost is already populating that's not the sales price that's what we buy them for uh so i'm going to say there it is and that times 20 gives us 8 000 and so then we're also going to buy an erp which we said was an epr an epr which is an an epiphone riviera let's say we buy five of those and they cost 440 times five gets us to that uh 2200 let's buy an eps h and so that's the epiphone semi hollow body