If you would like to track your inventory through QuickBooks, it is important that you set up your specific item types so that they will be designed for this purpose. This is called the inventory item type.
To begin the process, you must go to Preferences and then select “Items and Inventory” under Company Preferences. This is the process involved in activating your inventory feature. Click to check the “Inventory and purchase orders are active” box. Once you buy or sell items, be sure to track them by using the inventory transactions that are part of the QuickBooks program. This can help you to be aware of the sales history of particular goods. Without following this procedure, your tracking feature will not work correctly and you will not receive accurate data. Additionally, your financial reports will not be accurate.
When you track your inventory, it is fine to use items or sub-items. This does not affect the accounting process, but rather, it only indicates where the item will appear on the item list. Manufacturer’s part numbers can be added to inventory forms so that they appear on inventory reports. This can help you with your re-ordering process.
QuickBooks inventory tasks allow you to input information for the Purchase and the Sale. On the Purchase Information side, QuickBooks can use bills and checks. Invoices and sales orders take from the Sales Information section. You will notice that there are three different arrows which indicate the different types of accounts that are necessary to properly set up inventory type items. The first type of account that must be set up is the COGS account. This account records expenses when the item is sold. The Income Account shows the sales amount that is received upon the purchase of it. Finally, the Inventory Asset account shows the increase when items are purchased.
The process works in the following manner: Once the item is purchased, the Inventory Asset increases. This shows that the company has transferred cash for inventory. Once the item is purchased by a customer, the Income Account increases. This indicates that the company’s sales have gone up. The last change is to the COGS Account. This account reflects the expense of the item that the customer purchased, increasing the expense and decreasing the Inventory Asset account in order to show that there is now less inventory on hand.