Setting Up Inventory in QuickBooks 2014
Setting Up Inventory
For many companies, inventory is enabled if you create your company file using the “EasyStep Interview.” However, if you did not enable inventory when you created your company file, you can enable it at a later point in time. You can enable inventory within your company file and view the default inventory preferences, by selecting “Edit| Preferences…” from the Menu Bar. In the “Preferences” dialog box, select “Items & Inventory” from the scroll box at the left side of the window. To the right, click the “Company Preferences” tab and make sure the “Inventory and purchase orders are active” checkbox is selected in order to enable inventory-related features in your QuickBooks company file. Then set any additional default settings needed for inventory and items. Click “OK” to set your default inventory preferences.
If inventory is enabled, QuickBooks uses the average cost method to determine the value of inventory. QuickBooks cannot use FIFO or LIFO methods. The average cost of the inventory equals the total cost of the items currently in stock, divided by the number of items in stock. With QuickBooks, you can track the number of items in stock and the value of your inventory after every purchase and sale. As you order, receive, and sell inventory items, QuickBooks records each inventory-related transaction and adjusts the inventory quantity and value accordingly.
In order to track inventory, you must enter each item that you want to track as an “Inventory Part” within the Item List. QuickBooks tracks the quantity and value only for “Inventory Part” items within the Item List as you sell or reorder the items. You use the Item List to add, edit, delete, and inactivate inventory part items. You can display the Item List by selecting “Lists| Item List” from the Menu Bar.
Creating Inventory Items
You can set up “Inventory Part” items within the Item List to create items for which you want to track the quantity and value in QuickBooks. You cannot show inventory value for a manufacturing company or where the inventory value is changed as it goes through a process, as it is simply too complex for QuickBooks to compute. However, if you have items that you purchase from a vendor, hold as inventory, and then resell to customers, you can set up those items as “Inventory Parts” for ease of tracking in QuickBooks.
To create a new “Inventory Part” within QuickBooks, click the “Item” button in the lower-left corner of the “Item List” window and then select the “New” command from the pop-up menu to open the “New Item” window.
Select “Inventory Part” from the “Type” drop-down at the top of the window within the list that appears automatically when you open the window. Then enter the part name or number for the inventory item into the “Item Name/Number” field. If the item that you are creating is a subitem of another larger item category, then check the “Subitem of” checkbox and then select the main item for which this item will be a subitem from the adjacent drop-down menu. Note that when creating subitems, the subitem must be of the same item type as its parent item and that you must create the main item first, before creating its subitems. Then enter the manufacturer’s part number, if used, into the “Manufacturer’s Part Number” field.
Next, in the “Purchase Information” section, enter the description that you want to have appear within your purchase forms within the “Description on Purchase Transactions” field. You can then enter the default purchase cost of the item into the “Cost” field. This amount, if entered, will appear by default within your purchase forms when you select the item but you can always change it at that time, if needed. Then select the cost of goods sold account used to track the cost of purchasing the item from the “COGS Account” drop-down field. If you have a preferred vendor for this item, select the name of the vendor from the “Preferred Vendor” drop-down field. If this item is the first item selected within a purchase form, the preferred vendor’s information will automatically be filled-in within the form.
In the “Sales Information” section, enter the description of the item as you want it to appear within your sales forms into the “Description on Sales Transactions” field. You can then enter the default sales price into the “Sales Price” field. This amount will be the default amount displayed within your sales forms when this item is selected. You can always change it at that time, if needed. Then select the tax code used by the item from the “Tax Code” drop-down menu. Then enter the account used to track the amount of income generated by the sale of this item from the “Income Account” drop-down menu.
In the “Inventory Information” section, select the asset account used to track the value of inventory within the company file from the “Asset Account” drop-down. Then enter the quantity at which you want to reorder this item into the “Reorder Point” field.
If creating an inventory item for inventory that you possessed as of the start date of your company file, you can enter the total quantity on hand as of the start date into the “On Hand” field. Then enter the total value of the quantity on hand into the “Total Value” field. Then select the start date of the company file from the “As of” field. After creating the “Inventory Part” item, click the “OK” button to save the item.