 I sold and then based on that and based on a flow assumption first and first out life oh for or weighted average I can determine the decrease in the inventory over that time period and then I'll just do a journal entry in zero decreasing inventory and recording the related cost to get sold possibly on a nightly basis possibly on a weekly basis possibly on a monthly or even yearly basis depending on the method I'm using to track inventory outside of the system so that's a perpetual inventory method that you could use I'm sorry that's a periodic inventory method because we're adjusting it periodically at the end of night night week month or year and so then your next method is the perpetual method the full surface method all right so if we're doing a perpetual inventory system now we want to have our inventory account go up but also have a sub ledger tracking the inventory account when it goes up now normally if I go to my flow chart in a perpetual inventory system this is a quickbooks desktop flow chart but I'm just using it to show the accounting flow which is the same for most accounting cycles on a perpetual inventory system when we buy the inventory we might buy it with just like a check form or a decrease of money out type of form but we would be tracking items we have to set up items in order to track it or we might do more of a full service system or a process of requesting the inventory which a purchase order and then receiving it with a bill recording it and then once we have received it then we pay the bill right so we could have it depends on what kind of process we have to request our inventory so if you're using basically the bank feeds to try to fit the bank feeds in most clearly here or most directly then we might just say it's a money out form we purchase the inventory with an electronic transfer and try to enter it in that way but also see if we can add the items so that we can track the inventory in the system or if you were having a method where you request the inventory you would have a purchase order that would be a deviation from a cash-based kind of system it would make more work than trying to create your books from just the bank feeds because the purchase order is a request of inventory there's no cash actually happening there's actually no impact on the financial statements and you would only use a purchase order if you have sufficient amount of leverage in your business dealings with your with your supplier to request the inventory to be shipped to you before you pay for it and then when you get the inventory it would then have a bill in it and you can enter the bill or pay the bill at that point in time and then of course once we record the inventory on the books we're going to sell the inventory normally that would happen with an invoice or sales receipt form but if you're trying to make it all automated in the bank feeds you could imagine a system where you wait till it clears the bank and try and try to record revenue with it with a deposit form right but the problem is when you record the sales side of the transaction you also want to be tracking the uh the units that are sold right which means you have to track the items in the system if you're tracking that on a perpetual system within zero all right so if i go to the first tab just note that if i hit the drop down when we purchase inventory uh you might first use a purchase order and then i enter a bill from the purchase order or you might just pay for the inventory you know at the point in time that you are that you're purchasing the inventory like you kind of would if you're an individual buying something from like amazon or something in which case you might use the bank feeds uh for something to clear so we're going to say all right let's pretend that is the case but we're going to need an item so we want to put our inventory items in place to track so the items you can find by going to uh the business drop down and go into the products and services so i'm going to go into the products and services and i'm going to set up a service item the things that are usually populated when i make an invoice or something like that the things i'm selling the things i want to be tracking on a unit basis as well as the cash basis let's add a new item and i'm just going to say this is going to be uh i or inventory let's say inventory item one just generic name in it that's going to be the name of it and the purchase uh when i purchase them i'm going to say that uh let's keep let's keep see if i can keep it blank so i can purchase it enter the item when it comes through on the bank feed see if it allows me to do that i'm going to say the purchase account is going to be going to i'm going to see i'm going to keep the same inventory account i was going to create two but let's just put it to that same inventory one account and then the sales price let's say we sell them for like five hundred dollars let's just make up a number here sales account so the sales account notice i have two sales accounts this one uh is usually sales often refers to selling of inventory items versus service items which have no inventory and then if there's taxes involved in with the sale like a sales tax or usage tax then you could set up your taxes as well and that also uh the taxes also muddy up the ability to be able to make sales by waiting till something kind of clears the bank because uh because the taxes themselves is going to be an accrual type of thing you're going to have to put something on the books as a liability we might talk about that a little bit more later but let's go ahead and save that so now we have our item so now let's go into our banking again account or accounting drop down bank accounts and let's go into the drop down here and go into account transactions and i'm going to go into the reconcile item i'm going to look for a transaction on 10 17 next 10 17 i had a transaction i wanted to look for so here's the one so i'm going to say that this this was for the purchase of inventory so let's go ahead and add the details on this one and i'm going to say this is primarica 01 again so it's going to go to primarica let's just say to primarica all right i already have this one in there let's keep that and then the reference is good now it gives me the ability to add an item here so i'm going to say okay let's see if i can add an item there's item one and notice it's removing the dollar amount i tried to not put a dollar amount in the item so that it would keep the dollar amount here that we're that we have on this side but it's not doing that because it's going to use zero as the item so i could still say okay let's just say the unit the unit price was 30 and that's going to bring it back up to the 30 amount here so that looks good before i do this let me just change that item back so i'm going to i'm going to go back to the item again business drop down uh hold on a second business drop down i'm going to go back to products and services i'm not going to record this one and i'm going to put that 30 as the cost so i'm going to go into this item and let's say that we want to edit the item and let's put that cost of 30 so it makes sure that it tracks the 30 cost so there it is okay so i'm just adding the 30 cost now let's go back into the accounting let's go back into the bank accounts let's go into the manage account account transactions and reconcile and then back to that transaction all right let's do this again so we're in here i'm going to say that i'm going to add the details for this 30 transaction and okay and then i'm going to add the item and so now when i select the item there it is it's pulling in that 30 dollars now if you were to do it this way you'd have to make sure that whatever the item whatever you purchased down here you would have to actually fill in the items that match the total dollar amount of the 30 dollars so still this would be still kind of logistically difficult because most likely what what what you would want to do is uh is go up top and enter you know the purchase order and then the spend money form and use the bank uh reconciliation to reconcile the transaction but it is i just want to show that it is possible uh to do it to to run it this way so because you can add because it has the item field which again is a little bit different than some other softwares i'm not sure if that capacity is in like i could like the quick books online so it's kind of interesting and i kind of kind of like that they have at least the ability to do that in here so what are we going to do when this happens it's going to record the inventory is going to go up by 30 just like before and we're going to record a decrease to the checking account but also we have another account that will be created which will track the units of items that we're purchasing as well so let's go ahead and save it just to check that out and so save the transactions and but once a tax field i'm going to say tax exempt again taxes would throw kind of an issue into this as well i don't want to get into that right now but i'll say go ahead and save it all right so we're going to go up and say now i'm going to match it out so we'll say match it out and then so it's been reconciled if i go to the balance sheet and check it out we have our inventory account now has $80 in it that first transaction was not being tracked perpetually the second one was