 QuickBooks Online 2022 Inventory Tracking Options. Get ready because it's go time with QuickBooks Online 2022. Here we are in our Get Great Guitars practice file that we set up with a 30-day free trial, holding control, scrolling up just a bit to get to that 1, 2, 5 percent. We're currently in the home page, otherwise known as the Get Things Done page. At least with regards to the business view, which we are in as opposed to the accounting view, if you wanted to change to the accounting view, you can do by going to the cog dropdown and going to the switch to the accounting view on down below. We might be toggling back and forth from here to the sample company file just so you can take a look at what the accounting view looks like in comparison fairly quickly. So now we want to think about the different options you have for the inventory options. Remember, our goal is to get our beginning balances into the system. We are imagining that these are our beginning balances that we want to put in the system. We want to lay down those foundational things that need to be laid down before we can start entering the current transactions in the current time period, typically done by hitting the plus button and entering the forms like invoices, estimates, the expenses, the bills, the checks, and the so on and the so forth. So we're going through these items. We're going to be entering them in and we're going to start with one of the more difficult items here. That's going to be the inventory items right here. Now when we look at it here, we're just seeing the imbalance of the inventory items, which in essence is the cost of the inventory items. So if I was just going to put it on the financial statements, I could just debit inventory or increase the inventory account. But if I'm tracking inventory within the system, that's not going to be good enough because I also want to be tracking the units of the inventory that we have and the cost of those units that we have as well. So we can track it on a perpetual inventory system. So the question then is how am I tracking inventory? Am I tracking inventory on an accrual basis, which it would be indicated that I am here by the fact that I have some number up top in the inventory because if I was on a cash basis, the inventory is something that forces us usually to move from a cash basis to an accrual basis because on a cash basis I would have just expensed the inventory when I purchased it. So I have it on the books as an asset, meaning I'm not going to use it. I'm not going to expense it until the point in time that I sell the inventory, which is kind of an accrual thing to do. If it's on an accrual basis, then the question is, well, am I doing a periodic inventory system or a perpetual inventory system? If you use a periodic inventory system, then possibly you're not tracking the inventory within the QuickBooks system, but rather you're keeping track of it possibly in an Excel worksheet or something like that, you are then checking it periodically, possibly once a day or once a week, once a month possibly, and then you're adjusting for the adjustments that have happened on a periodic basis, just entering an adjusting transaction into the QuickBooks system on a periodic basis. So that one is a little bit easier in that at least for the setup process within the QuickBooks system, a perpetual inventory system, which is what we'll practice with here, would mean that you're listing out the inventory items that you're selling in QuickBooks, telling QuickBooks what the cost of those inventory items are. QuickBooks then is going to be recording the decrease to the inventory every time you enter a sales item, which is going to be the invoice or the sales receipt. So that means every time I go over here and I enter an invoice or a sales receipt, QuickBooks will know what the cost is driven by the items and will reduce the items for that cost and record everything basically as we go. So when you go to a grocery store, clearly you only see the sales price for the thing that gets rung up, but the system is set up so it's also recorded in the decrease in the inventory and the cost it gets sold on a perpetual inventory method. So let's take a look quickly at our flow chart over here. This is the desktop flow chart, but it's just a good flow chart to look at in terms of the process of the revenue cycle and how inventory might fit into it. And it also has the forms that are basically the same forms online. So let's just take a look at the flow. Now, the easiest thing on inventory would be to say, hey, look, what I'm going to do is just record the expense when I buy the inventory. That means you're ignoring the accrual method and you would only be able to do that if you had a little bit of inventory and you're on like a just-in-time kind of inventory method. Like if you're doing jobs for something or something like that and you kind of expense the inventory items at the point in time that you purchased them and you're going to complete the job fairly soon or something like that or if your turnaround time on the inventory is so small that you're just going to basically buy the custom inventory purchase and then sell it right away, then the easiest thing to do might be then to just record the cost of the inventory as basically cost of goods sold when you make the purchase, thereby not doing the whole accrual thing, making it a little bit easier. So when you pay for the inventory with like a check, then you might just record it to cost of goods sold and then when you record the invoice, what would happen is the item that you could use would be like a non-tracking inventory item and it would just record a normal kind of sale. So in other words, if I went into my items over here that we set up in the get paid area, the get paid section, if we set up our items and close up the hamburger and you set up a new item, you might set it up as a non-inventory because you're not tracking the inventory within the system even though it's a physical inventory type of unit so it wouldn't be doing a perpetual inventory system within QuickBooks and then when you recorded the invoice or the sales receipt with the little plus button entering the invoice, it would just record the side of the transaction you typically see when you go to a register, the sales side of the transaction wouldn't record a reduction in the inventory and it would cost a good sold part of the transaction at the point the sale takes place. So that would be the easiest method but if you have any significant inventory then you can't really use that method and you have to track the inventory. So then the next kind of easiest method, at least from the setup process standpoint would be to say I'm not going to use a perpetual inventory system tracking the inventory within QuickBooks but rather I'm going to use a periodic inventory system which means that when I purchase the inventory, I'm just going to record it as a purchase but I'm not going to track the units within the system. I'm just going to say hey I paid $100 for it and record a credit to cash but to inventory now instead of cost a good sold now it's going on the books as inventory but I'm just going to record it in terms of the dollar amount I'm going to track the units of inventory on a separate worksheet the units of inventory I'm going to track in Excel or something like that and I'm going to do my standard cost a good sold kind of calculation for the inventory and I'm going to count the inventory periodically so at the end of the day, at the end of the week, at the end of the year I'm going to do something like say well here's my beginning balance and then I purchased this amount of inventory that gives me my inventory available for sale and then I'm going to count the inventory at the end of the period, the day, the week, the year and subtract that out from the inventory available and the difference is going to be my cost of good sold which I will then make an adjusting entry for so then periodically I'm going to go into the QuickBooks system and just enter an adjusting inventory not tracking the units within QuickBooks but just doing an adjusting entry to account for that periodic system on a periodic basis daily, weekly, monthly or something like that that's the second easiest way that you can do that now note you also have to kind of figure out what your flow assumption is going to be do you have specific identification or are you using first in, first out, last in, first out, weighted average you need to know those flow assumptions whether you are doing inventory inside the system or outside because there's going to be variance in the cost of the inventory over time especially if you're in a period of inflation where the cost will possibly be rising over time and you've got to know well how am I going to deal with that when I sell the inventory which inventory unit did I sell did I sell the one that I purchased at the lower cost or the one at the higher cost for that you need to know the flow assumptions and the flow assumption within QuickBooks is going to be a first in, first out flow assumption for online the desktop version uses the weighted average you might have more inventory flexibility if you're going to level up to the advanced version of inventory, inventory complexity being one of those things that often forces people to level up on their subscription for QuickBooks and then we can say okay well the most accurate or the most intensive inventory tracking that we'll use here is that we're going to use a perpetual inventory system and so now when we purchase the inventory with a bill or a check we're not only going to say inventory accounts going to go up but we're also going to track the units within the QuickBooks system so we're going to say this is the unit that I bought this is how much I paid for it per unit and this is the total dollar amount that's in the system so now the system not only knows what the inventory dollar amount would be in total but also the units and so on and then every time I create an invoice and a sales receipt now the system is recording a perpetual inventory system and it's doing it for us if we set up the system correctly meaning that every time we enter this it's not only going to record the sale side but also decrease the inventory and record the related cost of goods sold so that would mean when we set up these items if I go back to the products and services when we set up these items we're going to be setting up the inventory items here which are more complex you can see the data input for them are more complex because I need to give the cost and the sales price and so on related to it that's what we will set up so that's the basics on the inventory in general so what we're going to do here in our system is imagine that we're going to do a perpetual inventory system kind of the more difficult type of system tracking the inventory within the system and the first thing we need to do with this beginning balance number then is not just enter the beginning balance but also tell us what units those beginning balance represent so we can enter into the system how many units we currently have on hand in the beginning balance to then give the supporting documentation the sub ledger the sub report related to inventory that's what we'll do next time