 QuickBooks Desktop 2023. Inventory Adjustment. Let's do it within 2-its, QuickBooks Desktop 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 then 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 QuickBooks Desktop Sample The Rock Castle Construction Practice file we set up in a prior presentation. Going through the setup process we do every time. Maximizing the home page. View drop down. Open windows is open. Going to the reports drop down. Looking at the company and financial opening up that P&L profit and loss. Tab 01-01-24-212-31-24. Tab and customizing that report by the way that's January to December 2024 on the range. Customizing that report so I could change the fonts and numbers of it. Bringing it up to 12. Okay. Yes please. Okay. One more time with the reports drop down. Company and financial this time bringing it all down to the balance sheet. Going to change that date to 12-31-24 and customize that report. Fonts and numbers. Change the size of that font. Bringing it up to 12 once again. Okay. Yes please. And okay. I know I'm doing that quickly but we do it every time. That's going to be the routine. So now we're back over to the home page. We're focused on the vendor section noting that the vendor specifically means that we're paying somebody else in terms of QuickBooks terminology. Money eventually going out of the company in order to purchase goods and service used in the company. Quick recap of what we've gone over so far in terms of the forms. The easiest way to pay for expenses would be to be paying them electronically perhaps in that case we would still be using a right check form when we possibly use the bank feeds. The bank feeds would use the right check form. The form that decreases the checking account. The other side going to an expense account. We'll actually talk about that form a little bit more in a future presentation or we might actually write physical checks sometimes in which case we want to write the check first typically to see when it's going to clear and that will be important. And then reconcile. We'll talk more about reconciliation in a future presentation. We might take a step away from a cash based type system to an accrual one entering a bill, a bill increasing the accounts payable and then the other side going to say an expense. Then we pay off the bill with in essence a check form. One that decreases the checking account but the other side specifically decreases the accounts payable the liability. Then we talked about the inventory, which is our focus now because we're going to have to adjust the inventory. So we're going to go outside of the vendor section over here a bit. But really this you can think of this as kind of part of the vendor cycle because we're talking about inventory kind of on the purchasing side generally. Remember the reason it's over here is because inventory is one of those things that kind of goes from the vendor side to the customer side. We purchased the inventory. We sell the inventory. We purchased from vendors. We sell to customers. But the adjustment I'm going to think of it more kind of on the vendor side of things. So we've got the purchase order up top. Remember that we only use the purchase order if we're able to order the inventory before we actually pay for it. We can imagine ordering that like 100 cups or something from a company in China or something like that requesting the inventory. Then they're going to send us the inventory possibly with a bill. If we imagine we receive the inventory with a bill, that's when we're going to enter it into the system. That's what we did last time that increases the inventory side of things. Now notice the next step would be of course us selling the inventory. Well, of course, we could pay for the bill, but we're going to sell the inventory from an inventory perspective on the customer side of things with a sales receipt or an invoice invoice or a sales receipt, and that will record the decrease to the inventory. Notice when tracking inventory within the Quickbook system, we're using a perpetual inventory system, meaning inventory is going to be tracked in a sub ledger as we enter the bill as we and it's going to be decreased as we enter the invoice and the sales receipt. If we set it up correctly, we'll talk more about setting up the items to do it correctly in the second half of the course. The other inventory option would basically be using a periodic method, in which case you might track the inventory outside of Quickbooks possibly with Excel or something like that, and adjust it through physical counts periodically into the day into the month into the week or something like that. Now, the system where you have a perpetual inventory system is great, but you still have to do a physical count from time to time because even though it's being tracked within Quickbooks, something can get off, right? So you could have shrinkage, you could have spoilage, something could be stolen. So clearly the count that you have in Quickbooks might not match your physical count, in which case you would have to make an adjustment to the physical count. That's where this basically adjustment item would happen over here. So let's just give a quick recap of when that scenario kind of might happen. So if I go to the balance sheet for example, we've got the inventory here. So the inventory on the balance sheet, we're down inventory at the 30,683. And if I double click on that and look at the 010124. So it goes up with the bills and down with the invoices we can see closing that back out. We want to see the sub ledger of the actual kinds of inventory that we have. So if I go to the reports up top and go to the inventory account and the inventory valuation summary, and I could change the date to 12 3124. So now we've got the on hand amount. Now this is according to Quickbooks, because Quickbooks is tracking the on hand amount as we go, it's valuing that based on the value of the item that we set for the cost of the item. And that's how we're getting down to this 30,683 38, which should tie out to what we have over here on the balance sheet. Going back to the inventory now it's possible that the inventory for example, if we do a physical count, for example, these cabinets, let's say don't add up to 423. Let's say we only count 400 of them will clearly then someone stole the cabinets. This captain's got lost somehow. Possibly the cabinets got old. It could be the case that captains become immaterial. We got 10 years ago cabinets in here. So our inventory we have inventory that has no value anymore or something like that. In that case, we're going to have to reduce the value of the inventory. So that means that we're going to have to adjust this to our physical count. So we have to adjust the sub ledger here. And we also have to adjust the total, which is going to be the asset value here, which will make an adjustment to the balance sheet right there. The other side needs to be recorded somewhere as well, which would typically be going to the the income statement, right? It's going to be a loss or shrinkage. It might be called inventory shrinkage, or something like that, or you might record it into cost a good sold if you just want to put it to cost a good sold. But that's when this would come into play. So then you would go over here and say, Okay, homepage, we can go then to the to the inventory drop down. And I'm going to adjust the quantity of inventory. And so now that we know what this form is going to do, we're going to say, Okay, the quantity we're going to have, let's do it by quantity, not by total quantity and total. I'm just going to do the quantity because that should adjust the total because I'm adjusting the physical count. Notice if you do the quantity and total, then you're going to have the new value kind of calculation over here on the right hand side. I'm just going to do the quantity and we can do it as a will just say 1231 to four, you're probably going to do it, you know, when you do a physical count, if you're doing a perpetual inventory system, meaning it's being adjusted every time you enter a bill, and every time you you make a sale with an invoice or sales receipt, then the system is going to be recording it, then you profitably want to still do the physical count, which might happen, you still might do it nightly, or you still might do it weekly, but you might do it on a monthly basis or something like that, so that you can shore up what the actual physical count is to what's being recorded in the system. If there are differences, then of course, you want to say, okay, is anybody stealing stuff or what's going on here. So then you can go to an account, you might make another account called called shrinkage or something like that, or you might put it to like the cost of good sold account. Basically, in general, I'm not actually going to record this just to show you the process. Now notice this company again, it's a little bit different, a little bit more complex because it's a job cost system. So if you had these items that were applied to particular jobs, that's going to make it a little bit more confusing. Just note that remember, there's a couple different kinds of inventory companies that you could have. The easiest one is one where you're just going to wholesale, you're going to you're going to buy it, and then you're going to mark it up. And that's going to be the profit that you're going to make versus actually making the inventory job cost system or process cost system fall under that tool. Those two methods where you're going to buy raw material and then put work into it value into it to get to the finished product, right? So now you've got different components of inventory. But in any case, then we're going to say, find select, let's let's pretend we've got these cabinets here, cabinet poles that have the unit on hand at the 423. And so I'm going to add that. And so it puts the amount on hand. If we imagine that now it's only 400, then of course, it's going to make the adjustment of 23, right? It's going to make that adjustment for us. And that would be the general idea. I'm not actually going to record this. Yeah, let's let's go ahead and record. I'll record this whistle adjust things. So so if you're following along with the same data file and the numbers are matching up, then you can actually record this transaction. So I'm going to put the quantity 1231 24. The other side is going to go to 501 cost of goods. And let's go ahead and say, save it and close it. Alright, and then we're going to go over to the balance sheet on the balance sheet side of things. If I double click on the inventory and there's our there it is right there. So there's the adjustment if I double click on that adjustment. So there it is okay. And so it decreased the actual physical the account. And then also it's going to go into a decrease the account. It's also going to go to the other side of the account, which is the profit and loss. So in the profit and loss, I just put it right into the cost of goods. So here I believe is the account we used. So there it is. There it is right here inventory adjustment. So if I double click on that, there's the inventory adjustment and it's not going to throw us off from our our sub ledger. So we want our sub ledger if I go back to the balance sheet to tie up to that still. So if I go to the sub ledger inventory evaluation summary, it should update automatically the cabinets are now at 400, which they adjusted the average cost to accommodate for that. So that total comes down to the 30,000 624 52 that should match then what's on the balance sheet 30,000 624 52. So you can see the perpetual system can be a little bit complex to set up. But once it's set up, it could, you know, it should be recording things as you go. But again, if to record things as you go, you got to use the forms, the appropriate forms to make sure that everything ties out properly, meaning, you know, the bills have to be entered with the items set up properly. And then when you sell stuff, you got to use the invoice and the sales receipts properly. And that doesn't mean that you can not do a physical count anymore. You still have to do the physical count because it's quite possible that something happened outside in real life different than what's in the system. Something spoiled, something got stolen, something, you know, there was shrinkage or something like that that you're going to have to make adjustments for periodically.