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Here we are in our bank feed practice file which we set up in a prior presentation using the 30-day free trial we also have open the free QuickBooks Online sample company if you want the to open at the same time we suggest using incognito window or another browser if using google chrome you can open incognito window selecting the three dots in the browser opening the incognito window typing into the search engine QuickBooks Online test drive we're using the sample company to compare the accounting view the one that the bank feeds practice file is in and the business view the one the sample company is in if you want to toggle between the two views we suggest going to the cog up top switch the view down below we're going to duplicate some tabs like we do every time to put our major financial statement reports in that being the end result that we're constructing from the bank feed data right click in the tab up top to duplicate it right click in the duplicate a tab to duplicate it again as the duplicated tab is thinking as the second duplicated tab is thinking we're going to go to the middle tab which is the first duplicated tab reports on the left hand side open up the balance sheet report by the way if you're in the business view the reports are located in the business overview on the left and then the reports that's where they're at that's where they're at going to the tab to the right we're going to go down to the reports once again on the left this time open up the favorite report of the profit and loss otherwise known as the income statement changing the range in from 010122 to 123122 i'm going to run it that's what we have thus far thusly far back to the middle tab closing the hand boogie scrolling up to change that range from 010123 to 1231 actually wait a sec hold on 010122 to 123122 hold your horse hold your horse because it needs a hug the horse anyways that's the setup process that we do every time so we've talked about some transactions that are usually quite easy for a small business to record using the bank feeds and those are the transactions like the telephone the utilities the normal expenses that you pay on a day to day type of basis in the month end type of basis we then talked about an equipment cash outflow for the purchase of a large item that we might have to put on the books as a fixed asset the other kind of complication people often have is if there's inventory involved if there's no inventory in your business you don't have an inventory in you know situation to deal with but if you do have inventory then you got to think about how you're going to set up the inventory process and how bank feeds are going to fit into that process to think about that let's first take a look at the flow chart over here this is a desktop flow chart but it's just a normal flow of the accounting cycles by cycle so we can think about how the inventory will fit into it now the inventory is going to have a component on both the vendor cycle which usually results in or will result typically in us paying cash at the end of the cycle for goods and services we're purchasing in this case inventory and inventory will have an impact on the customer cycle typically the end of the customer cycle being when we get cash coming going up hopefully at the end of the cycle for goods and services we provide to customers in the case of an inventory business we provide the goods of inventory to the customers so right now we're thinking about the purchase of the inventory if there's an outflow for the purchase of inventory then we're buying inventory now how so there's a couple different ways we can deal with the inventory one we can try to just stay on a cash based system with inventory but there's limitations to the type of industry that might be able to do that number two we track inventory as an asset but we do it on a periodic inventory system and then number three the more full service kind of system we track inventory within the quickbook system using a perpetual inventory system so let's go from the easiest to the most difficult with regards to the use of the bank feeds the easiest method would be that you're going to try to stay in a cash based system and you're going to try to just record the expense of inventory which is just cost of goods sold when you purchase the the inventory this might be used applied when you're buying inventory saves specifically for a particular job so you're buying inventory for a job instead of putting it on the books as an asset you just expense it as cost of goods sold at the point in time that you purchase it and therefore you can just use a normal expense type of form or you can use the bank feeds wait till it clears the bank and just record it as an expense type of form like you would when we paid the telephone bill and the the other bill the utility bill that we paid and then when you charge the customer the invoice you're not going to have to decrease inventory and record the cost of goods sold because you recorded the cost of goods sold first already so you just have to record a normal like sales transaction which you might be able to even record if it clears the bank as a deposit with a deposit kind of form to income and that would be like so you could do that with the bank feeds that would be the easiest way to deal with it although you also might have sales tax that could be involved in there and we might talk a little bit more on how to deal with the sales tax so if you're not using the full service system of creating the sales receipt or invoices the sales tax widget kind of thing doesn't work as well internally in QuickBooks so if you're trying to record sales with a deposit form and you have to deal with sales tax you might have to manually calculate the sales tax which is doable but you have to be aware of that as an added wrinkle the tax on things is always an added wrinkle now you can only do that with the inventory if your inventory is quite low so so and you're applying it to a specific job and the the time frame is pretty close but if you have inventory on hand to any any for any length of time then you're going to have to track the inventory as an asset so it's kind of a similar concept as we talked about with the fixed assets where we're going to have to deviate from a cash based system we put the fixed assets on the books as an asset instead of expensing it we have to do the same thing basically with the inventory put it on the books as an asset when we purchase it so that means when we make the purchase up top i have to assign the inventory to a a asset type of account now now if i do that there's two methods i could use i could use a perpetual inventory system or a periodic inventory system now a periodic inventory system is one where all the purchases of inventory i'm just going to record to an inventory type of account and then i'll make my sales of that inventory so let's say you know i buy my widgets and i'm purchasing my widgets i'm just going to increase inventory account and then i'm going to just make my sales of inventory not recording a decrease to inventory and the related cost of goods sold when i make my sales but instead just counting the inventory at the end of the day and then doing my cost of good sold calculation at the end of the day at the end of the week at the end of the month however you're going to do it on a periodic system cost of good sold calculation beginning inventory plus purchases minus ending inventory is the cost of good sold the amount of the inventory that you sold based on the physical count which you'll then you might have to use a flow assumption so i don't want to get into it in too much detail but like a life of fiefel or weighted average and then you can record a periodic adjustment at the end of the day week or month decreasing the inventory and recording the cost of good sold so in that case you're basically recording the purchase of the inventory when you make the purchase possibly with the use of the bank feeds as you make the purchase but you're not assigning it to the actual inventory units within quickbooks you're not tracking the units of inventory you're only tracking the cash flows of inventory you have to track the units of inventory in a periodic inventory system separately possibly on like an excel sheet or something like that where you're counting the units when you buy them and then you're counting the units at the end of the day week or month and then you're subtracting the two and that's going to show you in essence how many units you sold which can help you to figure out your periodic adjustments that you're going to make in quickbooks decreasing inventory recording cost of good sold periodically weekly daily monthly or and so or we can use a full service inventory system within quickbooks now a full service inventory system gets a little bit tricky then because not only when we make the purchase are we recording the account go into inventory instead of an expense account like cost of good sold we are also counting the units of inventory which means we have to assign an item an inventory item to it and that complicates the bank feeds so we can't really do that as easy with the bank feeds which means we might have to actually enter like a check or expense form first you know to record that information and then match it with the bank feeds which is likely to happen if you're doing a purchase with a full service inventory type of system so we'll take a look at each of these kind of methods in the future and when you sell the inventory in a full service system you can't wait till it clears the bank record the sale as a deposit because the deposit form isn't designed to record the tracking of the inventory you have to use the actual sales forms which are invoices and sales receipts invoices for an accrual basis sales receipts for a cash based system and then and then match it to the deposit or deposit and match it out in that way so that's the general idea so we'll try to so I know that was a lot to kind of take in so we'll try to show you this as we go here so if I for example if I go up top and I and I enter an expense type of form here you can see that usually I've been entering to a category like utilities this is the form that's created when we do the bank feeds but if I'm buying inventory and tracking inventory I have to track it by item down here which will track not only the dollar amount but also track the units of inventory that's where it gets tricky if you're using a full service system and so I'm going to close this out do you want to leave without saving I'm going to say yes and so let's go into the banking over here and just take a look at the data input on the banking going to go to the bank feeds if you're in the business or business view by the way it's going to be under the bookkeeping and we're under transactions and then the banking up top that's where your bank feeds would be so so that's going to be our bank feeds I'm going to close up the hamburger and let's look at this one right here so I'm going to pretend that this one was for the purchase of inventory now so I'm going to go okay this is for the purchase of inventory and I'm going to open this up I'm going to use the same categorized form which is like an expense type of form and then I'm going to say that this is going to be our call it just let's do primary primary oh one let's just do primary because I think I did the oh one before what do I have in here before primary let's do the oh let's add oh no I didn't do that one let's add the oh one so I'll do that boom and I'm just going to make up this vendor and it's going to into an owner's equity account so obviously that's wrong it's picking it's trying to guess where it's going to go now if it was if I was putting it into inventory I can assign it directly to an inventory account but remember if I'm not assigning an item then it's not going to record the unit so that would be on a perpetual system but here I'm going to try to do the cash based system and just record it to cost a good sold when I purchase it which is the expense account related to us selling inventory so I'm not going to have any tags or anything like that and then if there was a split then remember we can do the split down here but you still even with the split you notice that you don't have the items I can only apply it to a category so that's kind of a limitation on the bank feeds if you're using a perpetual inventory system and you want to you want to assign it to an item which is why under that system as we'll see in the future you might have to make the expense form first and then match the expense form over now we could then create a rule for it but I'm not going to create a rule this time because we're just going to be practicing the different kind of ways we can deal with the inventory if this was the system we were using every time then of course we could just create a rule assigning it to go to cost a good sold whenever we make this particular purchase but I'm going to say go ahead and add it and let's see what happens then if I go to the balance sheet and we run it to refresh it and then I'm going to go down to the checking account run it to refresh it and then we're going to go we're going to say hey we're going to say hey what happened okay Paso there's the cost of good sold $30 if I go into it we're into the expense form so notice again the expense form has the category it's filling the category field we didn't have the option to add an item which would help us to create an item to actually track the inventory by unit not just dollar amount in term to the category and then I'm going to go back up top and you'll notice that it's we don't have an inventory account we instead put the account directly into the if I run it to refresh it on the profit and lost a cost of good sold account here so now we put it into the cost of good sold notice we have a cost of good sold with no related income to it which is not that looks funny that shouldn't necessarily be the case but if we plan on make entering income with a deposit form possibly if you were using the bank feeds or an invoice form or a sales receipt form shortly or soon related to that inventory even though the timing difference isn't exactly right it might still be okay right we might be able to run that system and not have a problem however if there's a big difference between when we buy the inventory and when we sell the inventory then we're going to have more and more of an issue in the in the sense that we need to be tracking the inventory on the books as an asset and using some kind of flow assumption typically specific identification FIFO LIFO weighted average type of thing and then think about a periodic or perpetual inventory system we'll talk more about those in future presentations but if I go to the first tab over here note that if I if I look at my vendors now and I go down to my vendors on the expenses side of things and we look at the vendors we now have another vendor that has been set up which I which which was this one I think and then we have that expense form that was put into place there and of course if you're in the other view and the business view it's in the get paid and pay area there's your vendors we've got that added detail of the vendor information let's just open up the trial balance to see where we're at at this point in terms of just looking at a trial balance because I think it's useful to see how things are constructed from the bare bones the balance of the trial reports on the left we're going to say trial balance and let's run it from 0101 222 that's not a 2 that's not a 2 1231 222 run it to refresh it and this is where we stand so we've got our asset accounts just the checking account it's a negative balance at this point in time because we have to deal with that beginning balance issue and we haven't recorded any income yet and then we've got the asset account of equipment and then we're into the income statement caused a good sold telephone and utility that's all we have thus far as we're constructing our financial statements so we'll continue on next time