 QuickBooks Online 2024, inter-transaction for the purchase of inventory using BankFeeds Overview. Get ready and some coffee because we're meeting the deadline with QuickBooks Online 2024. First, a word from our sponsor. 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 Accounting Rocks product line. If you're not crunching cords using Excel, you're doing it wrong. A must-have product because the fact as everyone knows of accounting being one of the highest forms of artistic expression means accountants have a requirement, the obligation, a duty to share the tools necessary to properly channel the creative muse. And the muse, she rarely speaks more clearly than through the beautiful symmetry of spreadsheets. So get the shirt because the creative muse, she could use a new pair of shoes. If you would like a commercial-free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are in our QuickBooks Online BankFeed practice file we set up in a prior presentation. Let's open up the major financial statement reports as we will start to do every time. The reports on the left-hand side within the favorites. We've got the balance sheet. We're going to right-click on that. Open link in a new tab. We've got the profit and loss. I'm going to right-click on that. Open link in a new tab. I would also like to add the trial balance to the favorites. It's at the bottom under the account. They put it way at the last report down here for my accountant. It deserves better. It deserves better. So I'm going to bring it up to the top, making it one of the faves. And then I'm going to right-click on the trial balance and open that in a new tab as well. Let's tab to the right now and close up the hamburger and we'll do a range change. I've been working in the first two months. So we're going to go from 010124, tab 022924. 29 days in February 2024. It's a special time, people, special time. We're going to say months and then run it. So there we have it. Let's go to the tab to the right. Let's close up the hand boogie and let's change that range to the same. 010124, tab 022924. Selecting the dropdown so we can see it month by month on the side by side. Run it to refresh it. Tab into the right one more time on the trusty trial balance, a good old TB. We're going from 010124, tab 022924, tab run it to refresh it. Remembering that we always want to have an eye on these major reports, at least the balance sheet income statement or possibly the trial balance, which is the balance sheet on top of the income statement because this is the end result. This is what we're trying to do. This is what we're trying to make possibly just for taxes at the end of the year or for other external and possibly internal reporting needs. Let's go on to the first tab now and now we're going to go into the transactions and we have uploaded our bank feeds so we're in the banking transactions and now we're thinking about inventory transactions. We've been looking at the outflow of transactions, which is often where the bank feeds fit best especially for small businesses who are not dealing with accounts payable but rather making electronic payments as they become due for things such as the telephone, the utilities, other utilities and whatnot. So now we've looked at some more complicated type of areas that deviate from that simple kind of setup which don't happen as often depending on the business such as the fixed assets, purchases of large things and then now we have inventory. So inventory is only going to be an issue if you sell inventory obviously. So if you're in a kind of business where you don't deal with inventory if you're a gig worker, if you're a YouTuber or something like that then you're just going to get paid by YouTube and you don't have to deal with inventory. If you're a bookkeeper you might not have any inventory. Lawyers don't have any inventory. They have their own problems. There's other specialized things that you have to deal with such as possibly a job cost system in a service area but you don't have inventory and that could make it easier. But if you're in a business where you deal with inventory then there's a couple different ways that you might have to deal with inventory and obviously you're going to be purchasing inventory. That's when the inventory is going to impact the bank feeds and then when we sell the inventory then again we might have an impact on the inventory at the point of sale. So let's take a look at a flow chart. This is a QuickBooks desktop flow chart that we're using for online purposes because we just want to look at the flow of the forms which will be the same and get an idea of how the bank feeds would fit in depending on the type of inventory business that we are using. Now inventory is one thing that's going to impact both the purchasing side, the vendor cycle as well as the customer side, the sales cycle because we're going to be purchasing inventory, increasing our inventory and selling inventory, decreasing our inventory. Now let's go from the easiest inventory processing method to the most difficult inventory processing method. As we know with the bank feeds, the easiest thing to do is to just expense something on a cash-based system as the thing clears the bank. As we pay for inventory in other words, we'll see it come through the bank feeds. The easiest thing to do would be just to expense it at that point in time. So in some businesses you might be able to get away with that because if you're not holding on to a lot of inventory for example and possibly you're buying inventory specifically for a particular customer because it's a custom order or possibly you're creating something and you're making something that doesn't take a whole lot of time to create. It's not like you're creating, it's not like a job cost kind of system where you're constructing a building or something, you're making a necklace or something like that. Well then it's likely that by the time you get the materials to the turnaround time some necklaces I'm sure take a long time, I don't know. But I'm just saying that you would think that when you buy the inventory to the turnaround time when you sell the inventory you're not holding on to a lot of inventory. So in that kind of situation you might do the easy thing. You might still be able to say I'm dealing with inventory but I'm not going to track it on the balance sheet as an asset but just expense it when I purchase it. So that would be the easiest thing to do. You would just have the same kind of thing where it comes through the bank feeds and you would use an expense form which is like a check form recording it to cost of goods sold which means that you would have the cost of goods sold actually increasing the expense related to selling inventory before you sold the inventory, before you have the related income which isn't exactly proper. However, if the time frame to the point where you sell the inventory is pretty close then after you do that you're going to then have an invoice or possibly you sell the inventory and see the money come through on the bank feeds on the deposit side of things at which point you use a deposit form if you're doing a cash based system and you record the revenue when you get the deposit and if those two are pretty close to the same time then you might be able to get away with that. That would be the easiest thing to do. It would be a cash based kind of system. However, if you have a significant amount of inventory you would generally do that. So if I'm buying a stock pile of inventory I'm warehousing the inventory and then selling the inventory possibly I've let's imagine that I came up with a custom product that I have a patent for and I went to China and I asked them to manufacture it in China and they're going to basically ship it to me and I'm going to hold on to it and then try to sell it or something like that and then I have to track the actual inventory that I have on hand and there's going to be a significant difference in time between when I buy the inventory and when I sell the inventory therefore when I purchase the inventory I'll still see it come through on the bank feeds as I purchase it but it's not exactly proper to record it just as an expense at that point in time because really it's a similar situation as the equipment if you purchased a building the building as we saw hasn't made us money yet so the big example here is like if I bought equipment it's natural for us to say if I spent like $100,000 on a forklift or something I'm not just going to expense it at the point in time I paid for it because then I won't be able to match one period to the other one month to the other in terms of performance it makes sense to put it on an asset to say I have an asset of that amount and then I'm going to consume that asset or it's going to deteriorate in value as I use it over its useful life then we'll allocate using depreciation expense with the inventory it's the same kind of thing right when I buy the inventory I haven't used it yet I'm going to possibly be selling the inventory months into the future and therefore we should put it on the books as an asset and then at the point in time we actually consume it we use it how do we use it we sell it that's the point in time that we should be expensing it and even if you don't want to do that for tax purposes you might be required to do that as well in the United States so you're going to have to deal with that in some way shape or form so there's a couple ways that you could do that then you could track the inventory within QuickBooks and that would be using a perpetual inventory system in which we're actually tracking the units of inventory and the cost of the inventory which is going to complicate our bank feeds in the system you could try a system where you track the inventory in terms of units externally that's another way that you might be able to simplify things and still use the bank feeds you might say hey look I'm going to track the inventory on an external worksheet on Excel possibly your inventory is an online store like a Shopify, an eBay, an Amazon if you're using those we have another course or section on that and QuickBooks has its own tools that you can try to integrate with that but the idea there would be that you might most people would recommend that you might not want to pull all of the inventory transactions from a Shopify store for example into QuickBooks and try to track the inventory on a perpetual system within QuickBooks because you can track the units of the inventory on these other stores on the other platform on the Shopify platform or on Amazon and you're only going to clog up your QuickBooks system by adding all that data into QuickBooks what you could do instead is simply do an adjusting entry periodically when you need to possibly at the end of the month or if you're just doing it for taxes at the end of the year with the help of the accountant and then you can take the information from your other system in terms of units and create an adjusting entry for your books that's the other method that we could use or you might be doing it in Excel so you might use Excel for example and you're just counting the inventory which you could do on a nightly basis or on a monthly basis and when you buy the inventory you'll see it come through with a check form still but instead of recording it on a perpetual system you're just going to record it as an increase to inventory not tracking the units within QuickBooks and then you'll track the units in an external worksheet using a cost of good sold calculation so that would look something like this this is like a FIFO type of worksheet where you have the purchases the cost of good sold and then the inventory so when you purchase the inventory then you're going to record it in QuickBooks but just at the dollar amount and then you might track the actual quantity of purchases in Excel so for example here it costs us 400 dollars I mean I'm sorry 400 quantity 55 cost dollars per unit so the total cost was 22,000 that's what we would record in QuickBooks of 22,000 but not the number of units I'm counting the units externally and then as we sell the inventory what ends up happening is you'd have to use a flow assumption because and that would be the first and first out weighted average are the most common to or LIFO but weighted average are first and first out because the inventory even though we have the same amount of inventory the same kind of inventory could change in dollar amount so that's what gets a little bit confusing with it but the idea would be on the worksheet the simple calculation on the worksheet would be okay what if I just do this I'm going to format this cell I'm going to format Excel and go to do currency and then no dollar sign and then I'm just going to say that my beginning inventory let's imagine at the beginning of the night if I do this on a daily basis I had let's say 130 units and then let's say we purchase another 40 units then we have inventory available which equals the sum of these two I could have sold then 170 units the ending inventory we're going to say we count it we count the units that are left and if there are only like 60 units left we imagine that we sold this equals this minus this we sold 110 units see I can do this calculation on a periodic basis possibly at the end of the night the end of the week the end of the month the end of the year and then do an adjusting entry so I'm going to imagine that in QuickBooks I record all my inventory purchases as purchases tracking just the dollar amount not the units I track the units externally such as this with a physical count and a flow assumption which gets a little bit more complicated and again we have other courses or sections on that but the general idea is we do this calculation and then I can determine how much was sold allowing me to just do a journal entry in QuickBooks decreasing the amount that we have in inventory and recording the related expense periodically instead of perpetually on the books so that's the second method that you can do that can kind of be more reliant on the bank feeds you can track inventory externally that's the idea and then if you did inventory within QuickBooks and you wanted to track the inventory within QuickBooks then it's going to complicate the bank feed system when I purchase the inventory I can still purchase it I'll still see the purchases going through the bank feeds but I'm going to have to use what we call items in order to track the units of inventory and not just the account of inventory not just the dollar amount and that becomes a little bit more of a mess and therefore I might have to actually record the transaction first as an expense form and then use the bank feeds to match rather than using bank feeds to record the transaction when I sell the inventory then the inventory should decrease as I make the sale and this is the same thing that happens when you check things out at like a grocery store you know the sales price but the system also is decreasing the inventory in terms of units as well as dollar amount to do that in QuickBooks you usually have to use the sales forms invoices and sales receipts which again are not the forms that we see when we record a deposit in the bank feeds the bank feeds record a deposit form which isn't the form that allows us to track the inventory so again we'll have to then use more of a full service accounting system recording the sale of inventory with a sales receipt or an invoice and then use the bank feeds possibly to match out to those transactions or we enter the invoices and then we put on our side the deposit and then we use the bank feeds for those different scenarios in future presentations let's try to look at it one more way over here just to get an idea if you're doing a full service accounting system within QuickBooks it would require you to use the forms because if I go to the forms up top and I was to use an expense form for example to purchase the inventory I usually don't assign it simply to a category because then QuickBooks cannot track the sub ledger if I'm on a perpetual inventory system but instead I have to use the items and this items tab isn't basically there generally in the bank feeds so we'll check it out when you do the bank feeds you might not have the capacity to add the item which means you can't track the inventory in a perpetual inventory system so therefore even though the bank feeds create an expense form you're going to have to basically do the expense form yourself to put the proper item in place and then use the bank feeds to simply match to the expense form that you put in place if you're using a perpetual inventory system when you sell the inventory notice it's going to come through the bank feeds with a deposit form eventually right but the deposit form doesn't have an item on it so we can't record we can only assign it to a revenue account instead when we sell the inventory we have to use in a perpetual inventory system I have to use an invoice or sales receipt if I use these forms once again I have a product item down here that I can assign it to and if you're also if you're tracking inventory within QuickBooks then you have to set up the items which are in the sales tab and the products and services and so you really want to think about if you want to do that or not because if you have a lot of different types of inventory tracking the items within QuickBooks can be somewhat tedious and is one of the places where there are some limitations QuickBooks not being as good as possibly some other or you might need to upgrade and whatnot in order to really get a detailed tracking of inventory it's one of those areas that are kind of specialized so it could do some basic tracking of inventories but if you have a whole lot of different types of inventory then you want to think about what's going to be the best process for dealing with inventory do you want to track it within QuickBooks or not do you want to track it using some other kind of method and then do periodic adjustments alright if I look at the bank feeds let's go back to the dash here and transactions so notice if there was a money out like this one here like an office depot and look at this one again this will create an expense form but note that there's no place to put an item the inventory item that's the problem so we can't really assign it to an item okay so let's first just imagine like the easiest system and then we'll take a look at some examples and future presentations of the other systems so remember the easiest system would be I'm purchasing inventory I'm going to turn around and sell it you know right after I purchase it therefore the timing there's no timing difference I'm not holding on to inventory for a long period of time so maybe I can get away with just being on a cash based system and then in the next presentation what we'll do is we'll dive into well what if we're using a periodic system to track inventory doing an accrual thing in that case and then we'll take a look at the different and what if I'm doing a actual method alright so the easiest thing here let's say office depot we buy from office depot and then we tweak it or we sell it after we purchase it from office depot so we buy some whatever some wood there we whittle it down and then we sell it right it doesn't take a lot of time so we're going to sell it then I'm just going to say we bought it from office depot this time I'm not going to be putting it to machinery and equipment I'm going to put it to inventory not inventory though I'm not going to put it to the asset rather to cost of good sold so I'm going to put it directly to the expense even though I have not yet I have not yet sold it right because I'm going to sell it pretty soon and so I'm going to say there's the tag it's going to go to to office depot I could create a rule for it if this is my normal business although again I have to be careful with an office depot because sometimes I might be purchasing like or and sometimes I might be purchasing supplies so you have to be so that's one of those areas where you might be able to get some more complex rules to try to distinguish between if you're purchasing supplies or inventory or possibly machinery and equipment I'm not going to make a rule for this one though because we're just going to do an example for it so let's go ahead and so it's got the vendor let's go ahead and confirm it and so now if I if I go to the tab to the right these I'm sorry category I'm apologizing to the microphone again I'm going to go into the and here there it is so often no that's the thousand dollar one we just did this one so so there it is and then if I believe that's the one right yeah because there's no rule applied to it okay and so then if I go to the tab to the right and I run it we obviously if I go into the checking account we're going to see the transaction in the checking so we put it did I do the one for February I think I did it in February let's go back and yeah it's in February so I'll go into February and then so there it is the other side is going to cost a good soul it was created with an expense form if I go into that it shows the expense form and here's our expense form notice it it was assigned to the category not to an item this is the one that would track the units this is not tracking the units we didn't put it into inventory but cost a good soul directly so instead of going into inventory and then cost a good soul when we sell it we just put it directly over here to cost a good soul let's go to the income statement and check that out so now within the cost of goods sold that here it is in February February so there it is boom if I go into that there's the transaction so then if I go back so now it looks kind of funny because it's like okay wait a second there's a cost a good soul but there's no income usually the cost a good soul should be tied to the same period you have income that's why we do the inventory but we're going to sell the inventory fairly soon so if on the revenue side of things you're selling the inventory you could again do the same thing possibly wait till the inventory clears the bank and record it as a deposit when it clears the bank but it's likely that if you're if you're recording it this way and you're using QuickBooks the next thing that you might do is then invoice the client you're like okay I've whittled down whatever it is now I'm going to have to tell the client that it's due right that they can pay me like if it's your neighbor or something you could you can go talk to them right but if you're doing some other system the next thing would say okay I'm done with it I'm going to invoice the client to tell them and then hopefully have them pay me right and the invoice is going to be an accrual thing and therefore I have to record it before it clears the bank so I'm going to say this let's just make up a customer I'm just going to say this is customer one and we're going to invoice them and save and then I'm going to say the invoice number is there they can pay me within 30 days invoice date so 212 I'll keep it there because we did it in February let's make it a little bit later that's the invoice date I'm not sure when the original transaction let's put it there and then 216 they owe it on 317 and then I'm going to invoice them and so here's where we need a product right so I'm going to make an item but it's not going to be an inventory item so I'm going to say let's add an item and we're going to say this is the things that I'm selling I'm going to call it inventory item one whatever it is that I'm selling the item type is going to be whether it be service now it is inventory but I don't want to make it an inventory item because within QuickBooks that'll tell QuickBooks that you want to track the inventory in units not just dollars so we can keep it as a service item or like a non-inventory item even though we're selling the inventory so I'm going to say we'll just keep it there and then I don't need a category and then the description inventory item one and let's say that we sell it for $1,200 and I'm going to put it not into service income but sale of product income because we're actually selling inventory and so I'll put it they're both income accounts but I'll put it there now if we were and then I purchased this service from a vendor I'm not going to deal with the purchase side of things here I'm just going to say create and so now we're going to sell it for $1,200 now also if you had to deal with sales tax you could set up the sales tax here and deal with that the invoice is a form that can also help you with your sales tax calculations in which case you'd have to set up the sales tax at your location you'd have to then set up your items to say if they're taxable or not and then see if any customers are not subject to the tax or whatever but at this point what's this going to do it's going to increase accounts receivable because it's an invoice the other side is going to go to the revenue account of the $1,200 you're not going to have an impact decreasing cost decrease in inventory and recording cost of goods sold because we already did that we did that already so we're going to say because we just recorded the purchase directly to cost of goods sold so it's not going to happen with the invoice so I'm going to say let's save it and close it and boom and so if I do that if I go back to the balance sheet then and run it now we've got accounts receivable because we haven't collected the money yet but accounts receivable goes up and the other side is going to then the revenue so now the revenue looks correct in February looks appropriate right we've got $1,200 and the related cost of goods sold to earn that $1,200 was $6.78 so you see why there's an issue here if this one there's a timing difference so if I put this on the books and I don't actually sell any inventory until next year then it would look kind of funny right I should have them in the same period that's why we use that's why we put inventory in the books as an asset and then expense it either periodically or perpetually to put them in the same period however like I say if you buy inventory and you don't hold on to it for a long period of time and then you sell it you might still be able to get away with this because you're going to end up with the income and the expense basically in the same period in some cases and so then that would be the easiest thing to do so next time we'll get into the more complex thing to do is to say well now these things don't exactly match up so instead of recording the cost of goods sold as an expense we're going to put it on the books as an asset and if we put it on the books as an asset we're going to have to then track the asset and record it as an expense when we sell the inventory which gets a little bit messy to track because we have to determine which type of inventory we sold and what the cost of the inventory was and we can use either a perpetual or periodic inventory system okay so if I go internally here and I go back to my transactions so we recorded that one and so just note that if I go into my vendors my vendors in the offices tab we can see this activity happening here as well so the office depot transactions and if I go into my vendors here we can see the office depot and I can see the activity that has happened within office depot and then I can of course determine the expense category accounts that we recorded these too alright now if I go to my balance sheet where we stand at this point in time if you're following along so now we still have negative cash because we haven't recorded the deposit side of things we've got this accounts receivable because now that wasn't from the bank feeds we recorded an invoice which is a non cash transactions to demonstrate that and then we've got the machinery and equipment we now have a positive down here so the book value if we take assets minus liabilities there are none that means you have a positive value at this point of 376 allocated to us the owner of the business and so on the income statement then we have the total income and expenses here of the 1200 minus the cost to get sold minus the other expenses gets us to our operating income 376 which is part of the balance sheet in that it's included in the equity if I scrunch these two statements together into a trial balance here's the trial balance which is just basically the balance sheet on top of the income statement there's my cash account there's my machinery and equipment let's run it again there's my cash account there's my accounts receivable asset cash is negative that's why it's a credit it's an overdrawn because we haven't recorded deposits of money in the income statement revenue minus expenses this income statement makes up equity and I can see that if I was to change the date 010125 to 010125 to the next year where it will close out the income statement accounts to one number in retained earnings now I just have in essence the balance sheet accounts