 QuickBooks Online 2023 Internormal sales cycle which includes inventory into QuickBooks Online for comparison to an e-commerce type situation. Get ready to earn the skills needed to boost your bank books on up with QuickBooks Online 2023. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website. Broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Here we are in our QuickBooks Online test company file using the accountant view as opposed to the business view. You can toggle between the two views by going to the cog up top switch the view down below. Duplicating some tabs to put reports in like we're going to do every time right clicking the tab up top to duplicate it. I'm going to right click the tab up top to duplicate it again. I'm going to do it one more time so we can open up our inventory report as well. Right click in the tab up top and duplicating going back to the middle tab which was duplicated reports on the left hand side. Let's open up the balance sheet reports as it's thinking tab into the right reports on the left. This time the profit and loss the P and L the income statement tab into the right reports on the left. This time I'm going to type in inventory because I want an inventory report inventory. Let's do the inventory valuation summary and then let's go back to this balance sheet tab and do our date ranges. I'm going to close the hand boogie and let's do 120125 to 123125 and I will run that one and then tab into the right. Close in the hand boogie range to the change from 010 not 012125 to 123125 and run that one. Nothing's in it thus far tabbing to the right one more time closing the hand boogie and let's put this up to 123125 and run it. So in a prior presentation we talked about we've been following the flow of the inventory cycle in a normal kind of on ground type of situation. Managing the inventory with QuickBooks using a perpetual inventory system so we can then compare the differences of that situation to an e-commerce type of situation. Last time we talked about the vendor side of the purchasing cycle we bought the inventory in other words and you could do so with a purchase order and then a bill and then the paying of the bill or you might just have an electronic transfer that's going to hit the bank feeds for the purchase of the inventory. When we purchase the inventory traditionally we want to be putting it on the books as an asset because we haven't yet consumed it in order to generate revenue. And then when we sell the inventory if we have a perpetual inventory system we're going to be decreasing the inventory at the same point in time that we record the sales. You can imagine if it was an on ground situation that happening at like a cash register or you can imagine an invoicing situation but let's imagine like a cash register because that's similar to an e-commerce type of situation. So at this point in time now for following the inventory we've got the inventory on the books on the balance sheet in the account of inventory. It's recorded at the cost of the inventory and then we have the inventory over here in our inventory valuation summary broken out by item of inventory units of items of inventory as well as the total cost value of the inventory which matches what's on the balance sheet. To do that if I tap to the left we have to add the inventory items so if I go back down to the sales and to the right to the products and services we added our inventory items in here in order to populate the bill and the purchase order and the payment. So now we're going to make a sale so let's imagine we're at the cash register on our store and we're going to someone comes up with products that they want to be purchasing right so we're going to say all right. Not an invoice because we're at the store so it's going to be a sales receipt type of transaction. So we'll enter the sales receipts starting out with the customer I'm picking generic customer number one as we do note that some businesses it's quite important to get a lot of information about the customer to facilitate whatever work that you've been contracted to do. And in other businesses it's not quite so important when we're looking at something analogous to a Shopify store which is usually geared towards selling high volumes of products and inventory. Then we usually aren't looking to get a whole lot of information about any particular customer other than the email address to try to get them on our email marketing list or something like that. So when we go into the Shopify as opposed to imagining an on ground situation selling at a cash register that information is probably going to be given to us through the Shopify platform. And then we have the question of when we pull it into QuickBooks do we need to repeat that information over here in QuickBooks. That's one of the issues that will come up when we do this through like a Shopify store instead of actually within the QuickBooks. So let's tap through this. I'm going to say the date of this is going to be 12 let's say 1525 and payment method I'll just leave it blank. We're going to go down to the items that have been sold. Let's say that we sold product product or produce to let's do some produce to let's sell five of those at 200. Notice that this is pulling in automatically for us because we entered the items. And so let's sell another one at the same time they also are coming up to the cash register with their produce as well as product number one. And let's say we sold seven of those. So they got seven product number one and five produce in their hand and that is geared for 1000. Okay. So let's keep it there. What's this going to do when we record it? This is analogous to if you are in an actual store and actually doing a self checkout. You can just scan your items and say yeah I got five produce two and seven product ones. And the total then is going to be 1700 note that we're not dealing with sales tax. We might turn on sales tax to add that level of complication into the factor. But without sales tax it's still a fairly complex transaction when I actually record it even though the data input is fairly easy and straightforward that transaction being because it's a sales receipt. It's going to be increasing either the checking account or you might put it into a clearing account which is often the case. QuickBooks Online calls it payments to deposit. Let's do that so we can kind of see why that is an issue because that will be an issue with the Shopify situation as well. So it's going to be increasing in essence a cash account but not the checking account yet the payments to deposit which is similar to undeposited funds and QuickBooks desktop. That's what it used to be called. And then the other side is going to go to revenue for the full amount 1700 and because we have a perpetual inventory system inventory is going to go down by the cost of these items which isn't actually on the sales receipt. But the system knows about it because we put the products in place and the related cost of goods sold the expense related to us selling the inventory is going to go up. So the net impact on net income will be the increase of 1700 minus the cost of goods sold on the income statement. And we're going to have our sub ledger our inventory tracked not only by dollar amount but also by units. So all that's taking place here. So let's check it out. I'll save and close save and close it. And then if I go to my balance sheet and run it now we put this amount in payments to deposit. There it is here and the others and then the other side is going to the revenue account. So if I go to revenue I can run revenue. So there's the 1700 in the revenue account and if I go back to the tab to the left inventory is going to go down. So here's our inventory account. If I go into it and then it's going down and it went down by these two amounts to line items because they put in there by line item even though it's the same sales receipt. And if I if I go into it there's no 750 for example on this form because it that's the cost it's going down by the cost not the sales price. So we don't actually see that you don't see the cost of the things when you check something out at the grocery store for example. So I'm going to close that back out and scroll back and exit this and then I'm going to go to the tab to the right and cost of goods sold is right there. So there's the cost of goods sold. And so notice that expense our inventory at the point in time that we sold it expense the inventory. So the impact on the income statement is sales minus the cost of goods sold is net income. Note that this cost of goods sold is being recorded on an accrual basis because no cat. We didn't actually pay for the inventory at this point in time when we paid for the inventory in a full service perpetual inventory system. We put the inventory on the books as an asset and then we expense it when we consume the asset to generate revenue. That's the issue with inventory because that becomes difficult because if we're trying to automate everything. We're trying to we're trying to do everything from a cash based system for the most part because that's the easiest thing to draw in to feed into our system. So we're going to have to deal with this perpetual inventory system possibly in a little bit different way when we go to our Shopify store. All right. If I go to the tab to the left my voice is going don't go voice. I need I need some coffee. Hold on. OK. So any case. So there's the nine thousand nine hundred and inventory assets. If I go to my report over here then and run this. Now it's tracking my units of products that I have left and it's giving me the dollar amount of of those units. We need to be tracking both of those things. Obviously knowing the quantity of units is quite important to logistically be able to fulfill any orders that might come in in the future. But we also need to know the dollar amount which usually is going to need some kind of flow assumption FIFO LIFO. When we're using a normal kind of inventory system like this with with products which we assume to be all similar in nature in order to do our financial statements. And we're going to need those possibly for taxes. Now if I compare that to Shopify if I look at this whole process and say well what what happens if I'm actually facilitating the sale on the Shopify or or some other you know platform Amazon or whatever we're doing then obviously this platform is the platform that's going to have the website that facilitates the sale. So instead of someone coming up to us with products in at a cash register they're going on to the point of our online presence with their goods that they virtually put into their their shopping cart. Right. And then they're going to and then they're going to check it out on the shopping cart. So that means that the transactions that are taking place in an e-commerce situation are being facilitated by of course the third party platform in some way shape or form. And that's going to have to track the inventory to some degree. So we're probably going to be putting our inventory units. But remember that's going to help us. So whenever I sell inventory on a on a Shopify platform for example it would likely reduce the units of inventory for us which is great for logistical purposes to make sure that we have an appropriate amount of inventory to meet the sales that we expect to happen in the future. But from our financial side the question is well now I've got to pull this into the financial statements and there's an added complexity with that inventory versus cost of goods sold and converting units to dollar amount problem when we go to the finance side. So that's one thing that we're going to have to deal with now. How could we possibly deal with that. Well I could say every sales transaction that happens on the Shopify level. Let's try to mirror that as if it happened in a point of sale system and try to pull each transaction into QuickBooks a entering it into QuickBooks as a sales receipt and then try to try to track the inventory from Shopify into QuickBooks. Most times people don't recommend that especially for smaller businesses oftentimes or midsize businesses before a few different reasons. One is that it's time consuming because then you've got you've got to enter the products over here if you're trying to pull in the inventory information with it and the products have to line up perfectly so you pull in the information it could line up to a product. The other reason is it's a bit redundant because you already have the sale information took place over here. So if you pull all that information into QuickBooks it might not you might overload QuickBooks because again the Shopify stores usually geared towards quantity. You want to have a lot of sales and if you pull in a whole bunch of sales of small items like five dollar items and you have a million sales. It's going to start to slow down over time your QuickBooks system. So so generally the idea is that we don't we don't want to pull over the whole information oftentimes but rather try to try to sum up the information that we're going to be pulling in from Shopify into QuickBooks and that's why we're going to break it down from instead of a perpetual inventory system. More likely to a periodic inventory system so that we can pull in that information possibly more efficiently. Also on the sale side the sale side already happened over here and there's also going to be costs related to the to a Shopify situation that are going to be charged for the service of Shopify and they might handle other stuff like refunds and stuff like that and possibly you can have to handle taxes in some way. So that stuff on the income side we're going to have to deal with when we pull that information into into our QuickBooks system. Not only the stuff in other words that would happen when we facilitate a sale if it was an on ground situation but the added fees that we have to deal with for the services being provided by the online platforms and possibly the payment processors. Alright so the other thing that we have to deal with is possibly sales tax and sales tax is a whole another kind of topic that gets gets into the weeds in a Shopify thing but for now let's just think about how sales tax generally works. So I'm just going to turn on a generic sales tax down here. So we're going to go to our taxes down below and we're going to say sales tax and I'm going to use automatic sales tax. Now this is great if you're having on some it's going to be picking my location here. I'm just going to turn this on fairly quickly just to get an idea of it. Tell us more about you. So do you need to collect sales tax outside of California. If it was an on ground store I'm going to say no which obviously simplifies situations when you're in an in an e-commerce situation then you got to that's a question. Do I am I subject to sales tax and what states and who's going to be collecting the sales tax and whatnot. Let's just see how the process works here. I'm not going to create an invoice and this is the sales tax that's going to be that's going to be populated based on my location that I put into the system. I'm going to say frequency. Let's say we pay it monthly. Okay. So that's that's just to turn on the sales tax. We might talk more about sales tax in a future presentation right now. I just want to see how that fits into a normal sales transaction. If you had it running within an on ground system. So if I go into the plus button again and let's make another sales receipt but this time we've got the sales tax running. Let's say this is going to go for customer number two generic customer number two. And the date 12 16 let's say and down here we're going to say that the item let's say we had item product number three. And let's say we sold three of those and it's subject to sales tax. I'm going to check it off. It's subject to sales tax. I should go into the items and say that it's subject to sales tax but product number one. Let's say two of that are subject and it's subject to sales tax. So now the system is calculating sales tax on it. So what does that do to our sales receipts transaction? Well it's a sales receipt. So it's still going to be increasing the payment to deposit the clearing account for the full amount the one thousand two oh four fifty. It's going to increase revenue driven by the items for the amount that we charged only one thousand one hundred not including the sales tax. The difference the sales tax is going to go onto the balance sheet account of sales tax payable which will then pay at a future point in time. And then of course the inventory is still going down not by the amounts on the sales receipt but driven by the items which knows that amount and the related cost to goods sold the expense is going up. So the new thing then is the sales tax. Now the thing with the sales tax is you can imagine the sales tax people get confused on how the sales tax is supposed to work because they start to pay sales tax. And they say well why don't I have a sales tax expense account on my income statement. And the reason is that in theory the sales tax is being imposed on the customer not on you the business. Therefore you shouldn't include sales tax in revenue. In other words you can imagine a situation where you say hey look I'm just going to record cash of one thousand two hundred and four fifty and revenue of one thousand two hundred four fifty. And then when I pay the sales tax I'll have an expense of one hundred four dollars and fifty cents revenue minus expenses will meet in net income in the same situation of the one thousand one hundred. In the same case it would be just like it would be the same bottom line why wouldn't I do that in other words. And the rationale is that that isn't revenue the one hundred four fifty although you're collecting it you're just the tax collector it's actually not revenue and therefore shouldn't be on the income statement. We're going to put on the balance sheet as a payable and then when you pay it you're not going to have an expense you're just going to decrease the payable. That's how they want to have it set up. Now of course that gets a little bit more complicated when the sales tax stuff is being taken care of by another by the Shopify store. So this is another wrinkle in our system here. So let's say let's save it and close it and see I'll show you what I'm talking about. And let's go to the balance sheet run it and we can see that now in this payments to deposit account we have multiple items in here. For we're going to just imagine their cash or whatever or a credit card for example that were that were charged on it that we need to put into the checking account at some point. The other side is going to revenue if I go into revenue let's run this revenue. And so now we've got the second sales invoice that happened and the revenue accounts are here but it's not including the sales tax in revenue. The difference between those two if I go back on over is back on the balance sheet. Let's run the balance sheet that I run the balance sheet before it's back on the balance sheet and it's under the payable account payable account. Here it is. I was looking for sales tax payable but they put it under under the name of the department that you need to pay possibly that makes it easier when you have multiple sales tax. But there it is. It's on the books as a liability because when you pay the sales tax you're not going to have an expense you're going to decrease the liability. And then of course inventory that's the new thing inventory went down just like before with the transaction. So inventory is decreasing and the related cost of goods sold is on the P to the L cost of goods sold went up. The impact on the income statement is the income not including sales tax minus the cost of goods sold. And if I go back to the balance sheet our inventory 9 1 2 0 matches our sub ledger over here 9 1 2 0 tracking the quantity and the total asset value that's over here on the balance sheet. Okay so there's that added wrinkle with the sales tax. Now obviously if you're in like a Shopify situation or an Amazon kind of situation the question is are you subject to sales tax and in which state are you subject to sales tax. If you have like an Amazon for example then the platform itself might be responsible for a lot of sales tax. We might dive into that more later but that could make things easy but some states might not have that be the case. And then the question is where you know are you subject to sales tax in the in the place of your physical location. But now you have an online location. So does that mean you're subject to sales tax and in different states because sales tax is different per state. So that gets messy. But just the logistics of collecting the sales tax right now is what we want to think about because obviously the sales tax needs to be collected at the point in time. That the sale happens which now isn't going through QuickBooks but rather is happening on the Shopify or Amazon type of level. So when dealing with sales tax we have to take that into consideration when we're drawing the information in from an Amazon or Shopify type of platform into our QuickBooks system and make sure that we're still managing properly the sales tax. Now one way you can do that is to try to say well I'm going to try to pull in every transaction and create a sales receipt for every transaction. Turn on sales tax within QuickBooks and let QuickBooks calculate it and so on. But again that becomes kind of redundant. It becomes kind of tedious because and and it could weigh down your system because all that stuff has already been done just on the Shopify to some level. And so do we really need to pull it all in again that might be too much too overwhelming of a job to do. So in other words we're probably not going to use the whole sales tax widget thing down here to process our sales tax possibly but rather hopefully use the other platform to help us to manage the sales side of the of the sales tax and then summarize that information in some way into our our QuickBooks system in a more simplified method than trying to just pull in you know every every transaction. Now the other issue the last piece that we're going to talk about right now is the fact that now I've got this amount in payments to deposit. So if I think about this from a flow chart we made sales receipts we didn't deposit them directly into the checking account. You can imagine like a situation where you have cash but the same thing happens with credit cards and other payment processors that being if you have multiple sales that happened during the day and you're at a cash register. Then you don't want to put them directly into the checking account each time you make a sale because if you made five you know 10 $5 sales then you would have a bunch of $5 amounts in your checking account. But when you deposit the money into the bank you're going to walk to the bank with a full lump sum deposit and put that into the bank therefore it's going to show up on your bank statement as one number not you know 10 $5 amounts. So so what you want to do is make sure that you group the deposits into your checking account and the same fashion as they will be represented on your bank statement so you can reconcile. When we pull the information in from a Shopify we have a similar situation if I try to pull every transaction in one at a time make a sales receipt of each one of them and I deposit it directly into the checking account. I'm going to still end up with the same problem as we would in an on ground store meaning I'm going to have a bunch of deposits into the checking account. I'll have to kind of add them all up to lump them together as the same grouping that the payment processors or credit card companies or whatever lump them in our bank account as they didn't do it $5 at a time they lump them together in some way. So so the way we do that in a non ground system is we deposit into the payments to deposit generally and then when I go to the bank at the end of the day we will make the deposit. So I'll make a bank deposit and then I'm going to deposit these two items at 1216. Okay so the full deposit is going to be 290450 instead of two individual deposits 1700 120450 and that then will make it easier to reconcile because my bank statement will have one number 290450 not two numbers on it. Reconciling is very important and this is going to be very important with with the Shopify kind of or pulling the information from a Shopify type of situation as well because it's likely that we also want to automate our bank feeds. And the information that's going to come in through the bank feeds is going to be whatever was deposited into the bank in this case to 290450 not 1700 or 120450. So that that becomes an issue we need to be aware of when we pull this information in from like an e-commerce website. So let's save it and close it and see what happens. So we'll say if I go to my checking it let's run it. So now in my checking account we pull the deposit in to the checking account that would match what hits the checking account with the bank feeds. And it'll reconcile to the bank reconciliation and the payment account went back down and it shows the payment to deposit. It shows the increases and decreases line item by line item which is quite nice. So to summarize this when we when we compare this to what's going to happen in a Shopify type of situation or some other kind of e-commerce store. Note that QuickBooks isn't isn't their inventory perpetual inventory system isn't generally designed to pull the information in from a Shopify type of store. Right because if I pulled it in you would think that I would have to make it a sales receipt in order to properly allocate for the inventory. Calculate the sales tax the way QuickBooks would want to do it in an online kind of situation and deal with the payments to properly flow through and match up to what's on the bank feeds. So so we can't normally do a full service you would think you don't typically want to do that because for the reasons we talked about before. So we're going to have to break this up a little bit and QuickBooks does work quite well to break it up. It's just that when people first think about it about QuickBooks they feel like they're just going to turn on all the stuff and pull in the data. Turn on the inventory and track all the inventory in the same way as you would if it was an on ground store. And that's you'd have to use QuickBooks normally a little bit different way and that would be we're going to break this up generally from a perpetual inventory system to a periodic inventory system. And we'll pull in the data that we need from Shopify utilizing the import tools which are going to be bank feeds possibly some some integration apps to pull in that information. And we'll pull in the information only that we that we need so that we don't overwhelm our QuickBooks system as well and we don't make it too tedious on us. And this is similar to the bank feeds if you if you just turn on the bank feeds for example and you have no idea how to use bank feeds you're just going to pull in a bunch of information and be completely overwhelmed. You have a similar thing with the with a Shopify or an online store if you just pull in all the transactions from a Shopify and you don't know how to integrate those transactions. You could end up with a with a very big mess right so the quit. So what we want to do is summarize the information into QuickBooks. So hopefully I haven't scared anyone completely away with this but I just want to go over the the the issues that will will will go into and then we'll try to simplify that information as we pull it in from like an e-commerce source.