 QuickBooks Online 2024. Inventory Reports. Get ready because we're moving on up with QuickBooks Online 2024. Here we are online in our browser searching for QuickBooks Online Test Drive, looking for the result that has Intuit.com in the URL, selecting the United States version of the software and verifying that we're not a robot. Opening up our major financial statement reports like we do every time, the reports on the left hand side and the favorites. We're going to be right clicking on the balance sheet, open link in new tab. Right click on the profit and loss, open link in new tab. Let's go to that middle tab, closing up the hamburger and change the range. Going back in time to 2023. 123123 tab. Run it to refresh it. Well then tab to the right, close up the hamburger up top and change that range again from 010123 tab, 123123 tab. Run it to refresh it. That's the setup process that we do every time. These being the major two financial statement reports, balance sheet income statement otherwise known as the profit and loss. All other reports generally giving more information about one or multiple line items of these main two reports. This time we're looking at inventory reports. If we go back to the balance sheet, first a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our CPA six pack shirts. I must have for any pool or beach time mixing money with muscle. Always sure to attract attention. Yeah, even if you're not a CPA, you need this shirt so you can like pull in that iconic CPA six pack stomach muscle vibe man. You know that CPA six pack everyone envisions in their mind when they think CPA. Yeah, as a CPA, I actually and unusually don't have tremendous abs. However, I was blessed with a whole lot of belly hair. Yeah, allowing me to sculpt the hair into a nice CPA six pack like shape, which is highly attractive. Yeah, maybe the shirt will help you generate some belly hair too. And if it does make sure to let me know. Maybe I'll try wearing it on my head. And yes, I know six pack isn't spelled right, but three letters is more efficient than four. So I trimmed it down a bit. Okay, it's an improvement. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. We're looking at reports that are going to give us more information about the inventory line. Now, before we get into these reports, just note whenever we talk about inventory, we have to note that we have different systems that we can use to track the inventory. We could track inventory on a perpetual inventory system, in which case we would be tracking the inventory in QuickBooks and therefore have a sub ledger, which are going to be these reports that we will look at. However, you might track inventory externally using some other software. If you're a Shopify store, or if you have a Amazon store or something, you might use those systems to count the quantity of units that you have because you're tracking the units within there so you can restock them and whatnot and possibly only do periodic journal entries to adjust the inventory in QuickBooks using your cost of goods sold calculation beginning inventory plus purchases minus ending inventory gives you the cost of goods sold. Or you might be tracking inventory in Excel and doing a similar process. So, you don't feel like if you have a simple system of inventory that you have to use a perpetual inventory system within QuickBooks, you have the option of using a periodic system of some kind if you choose. Now, if you do have a perpetual inventory system in QuickBooks, then QuickBooks will be tracking the increases in both inventory units as well as the dollar amount when you purchase inventory using typically an expense check or bill form. And then when you sell the inventory, it will be decreasing both the dollar amount and the units when you sell the inventory. If I go back to the first tab, that means that when we go into the sales tab on the left that we're in our products and services, we have our inventory in here that we're tracking as basically physical inventory. So, the ones that have the costs in them, for example, you can see are going to be tracked physical inventory. You have the quantity on hand for those pieces of inventory. Okay, so let's go into the reports then. If I go into my reports on the left-hand side, first way to look at the inventory, I usually just type in inventory and you can see the three main reports that we have related to it. We've got the inventory valuation summary, the inventory valuation detail, and the physical inventory worksheet. The first one we probably would look at is the valuation summary. But let's go down and find it down below as well. So, if I scroll down here, we can see that we have the inventory worksheets in the sales and customers. I'm not quite sure why they put it in there. I'm not because you're selling inventory to customers, but it's kind of a balance sheet item as well. So, they kind of stuck it in here in this area. So, we've got the inventory valuation detail. Let's right-click on that and open in a new tab. And the inventory valuation summary, let's right-click on that and open in a new tab. And then we've got the physical inventory worksheet right-clicking on that open in a new tab. All right, let's go up to the tab that we opened here. This is the inventory valuation detail. Let's look at the summary first. Here's the inventory valuation summary. This is probably the main form that we will look at and have been looking at every time we make a change to inventory. Closing up the hamburger, changing the range, bringing it back to, let's say, 12, 31, 2, 3. Notice that this report only has one date up top and the data input. One date here because it is basically supporting a balance sheet report that is being reported as of a point in time instead of having a time range, not a performance report, not similar to the income statement or the profit and loss. So, we've got then the inventory units. So, we've got the units and groups. So, we have these are the different categories of inventories if you set up the inventory categories. The number, the SKU number, SKU number if you have one, and then the quantity, this is the quantity currently on hand. This is the added unit of detail that we don't have if you're not using a perpetual inventory system within QuickBooks because when you buy inventory, it's easy to know what the dollar amount is, but it's harder to track the units. And then when you sell the inventory, again, you can kind of think about the dollar amount of inventory you're selling but you have to be thinking and tracking the units as well. Now, also note that when we get into tracking units of inventory, we also have an issue with regards to the flow assumption or whether we're going to use specific identification. So, in other words, if you sell like automobiles, for example, because they're large, they're basically unique or you can track each one of them in and of itself, they have a unique license plate number and whatnot, then you're going to use specific identification and note exactly which car that you're selling. However, most other things that you sell, you're usually selling things that are all the same. So, if you have whatever widgets that you're selling, all of the widgets are the same, then you don't know which widget you're selling, right? Because whoever bought it, they just picked one of the widgets out of the box of widgets or you might have an actual attempt to sell the oldest ones first, which would be a logical process, but again, you don't really know exactly which ones you're selling. So, that wouldn't be a problem if the price of the inventory was always the same, but it's not due usually to inflation, meaning over time, the cost of the inventory that you're purchasing will change in terms of dollar amount. Then the question is, well, when I sell the inventory, what is the cost of good sold that I should have? Should it be the old cost of the inventory or the new cost of the inventory? That's where the flow assumptions come in. The common flow assumptions being first and first out, the weighted average method, and then the last and first out, which isn't typically used. It's usually between first and first out and the weighted average method. So, if you want to get more into those flow assumptions, then we have courses on inventory flow assumptions if you want to dig into that in more detail, but that kind of gets into the weeds. You have to kind of keep that in mind. But in any case, here's the quantity, here's the asset value. Now, this asset value is not at retail price. This is the cost of the inventory. So, the inventory is at cost because that's what we spent to buy it, and we're not going to record it at retail until we actually sell it. When we sell it, we will mark up the inventory and we will record it at that price when we sell it if we can do so in the recording of the sales dollar amount that we will receive for it. So, if we pull out the trusty calculator here, let's pull out a trusty calculator. We can also calculate the average price because we can say, okay, well, if there was 250 divided by the 25, that's going to give us a $10 average price. Now, that's just an average. That's all they're doing here, right? They're just taking the total 250 divided by the 2 and that's going to give us the 125. Now, this total down here for the cost should tie out to what is on the balance sheet. If I go back on over to the balance sheet, then where's the balance sheet? There it is. It's going to be in inventory 596.25. Note that the balance sheet account of inventory doesn't have its own category like accounts receivable does. The inventory is basically acting like every other current asset account. So that means that QuickBooks isn't putting special restrictions on inventory as they are with the AR account. With the AR account, the accounts receivable and the accounts payable, they restrict transactions to make sure that the subledger matches, meaning you can't post something to accounts receivable without adding a customer. You can't post something to accounts payable without adding a vendor. With inventory, you can post something to inventory without using an item. If you just put a journal entry to inventory, you could do that. But that means that it's going to throw off your subledger account over here, right? So the subledger is going to be thrown off if you post something to inventory. So you've got to make sure if you're tracking a subledger of inventory that you're making your purchases properly with the expense form check form or bill forms and using the items area, meaning if I bought inventory with an expense form, I'm not going to put it in the category of inventory, but rather I'm going to use the items to drive the inventory because the items is the tool that's going to help us to track the subledger by both units as well as the dollar amount. And then when I sell the inventory, when I sell the inventory, of course I want to make sure that I use an invoice or a sales receipt form and make sure that I use the items so that the system can now decrease the inventory properly based on the cost of that inventory so that our subledgers tie out to what is on the balance sheet. So that's the main report that kind of ties out. Then we can go to this one. This is the inventory valuation detail. As the name suggests, let's change the range up top going from 010123 tab, 123123 tab, run it. We have now the detailed report. So we have the inventory items. This is a sub item that we have here. And then we have the activity that has happened for that particular piece of inventory. So we've got the date. We've got the transaction type, meaning it was an inventory quantity adjustment. This is what QuickBooks used to put first, put it on hand or can be used if there's shrinkage or spoilage of inventory. And then we purchase inventory with checks and bills. And then we sell the inventory with invoice forms and sales receipts. The quantity, this is the quantity per transaction. This is how much they put on the books at first. Then it went up by three units. So you can see then the quantity on hand having a running balance here. We had 16 and then we bought three, goes up to 19. And then we bought eight, so we're 27. And then we sold one, goes to 26 and one down to 25. And then we have the rate, $10 note here. It's nice and simple because the rate has not changed. The rate has been the same, meaning there hasn't been inflation and whatnot that has happened over time. Notice here we have the first in, first out cost. So that's the FIFO, first in, first out. So then the cost is going to be the 160. The 160 and then we bought another three at $10. That brings us up to the 30 that we have here. So we have the 160 for the asset value and then another 30, right? Gives us to the 190. I probably don't need the calculator here, right? Then we've got eight times 10, that gives us the 80. So we were at 190 plus the 80, gets us to the 270. Then we sold one, which is at $10, so minus 10. So that's going to bring us down from the 270 to the 260 and so on. Now, the reason this is a little bit simplified is because these costs didn't change. If they do change, meaning the cost of the things that we're purchasing differ, then we're going to have some layers that we have to deal with, some of the inventory being priced at different levels than others. So QuickBooks will kind of take care of that for you, but you probably want to understand that conceptually if you deal with tracking inventory in QuickBooks, which uses this first in, first out method. So again, we have a course on that if you wanted to dig into that in more detail. So the bottom line with the inventory is you want, if you're dealing with inventory, how are you going to do it? Do you want to track unit by unit within the system, on a perpetual inventory system, as you purchase the inventory, as you sell the inventory, then you're going to have the sub ledger reports that tie in. You want to make sure you set the items up properly and so on. Or do you want to just make sure that you record the inventory and cost of goods sold correctly, periodically, possibly tracking the units in an outside area, such as your other website Shopify, Amazon, or on an Excel worksheet, so that you can get the dollar amount properly recorded for financial reporting and income taxes, but do it periodically and have a more simplified system, possibly, because you're not dealing with the more complex transactions within QuickBooks of tracking the inventory units every time you purchase and sell the inventory, but rather just adjusting them periodically using external software or worksheets, using your good old cost of goods sold calculation beginning inventory plus purchases minus ending inventory. To dive into inventory, I think we have a course or section on Shopify stuff. If you want to dive into that more and just inventory in general from an accounting standpoint, if you want to get a better grasp of those flow assumptions.