How to handle prepaid inventory in QuickBooks? This question has a big problem for small business users because it’s important to manage workflow.
First, we explain What is prepaid Inventory? Because most users don’t know about it. Your small business must record the cost of the inventory as an expense on the income statement you sell it and prepaid inventory is inventory for which you have paid but have not yet received.
How To Handle Prepaid Inventory?
On hand report as well as the profit and loss reports are accurate by this workflow to manage properly, because its important.
We share an example with you, Assume your small business paid $2000, including shipping, to a supplier before the supplier delivers your inventory and you assume sell the inventory the following quarter. When you pay for the inventory, record $2000 as prepaid inventory in the current assets section of your balance sheet.
Remove $2000 from the prepaid inventory account, when the inventory arrives and add it to the inventory account. The following quarter, remove $2000 from the inventory account and report $2000 as a cost of goods sold on your income statement to expenses the inventory.
What is the purchase order?
First, we describe what is a purchase order? and why is important? Before to track inventory it is compulsory to know about PO (purchase order).
A purchase order is a document sent by a purchaser to a vendor that authorizes a purchase and this is an official confirmation of an order.
- Mailing address
- Payment Information
- Invoices address
- Purchase order number
When we work on Purchase order one question arises in your mind why do companies use the purchase order? Here is some reason for your question:
- They set clear expectations
- They help manage orders
- Also, they help with budgeting
- They are the key part of audit trails
- They are legally binding
To Track your Inventory:
Create a PO when the order is placed:
For purchase, select the Plus icon at the top, then Purchase order.
In product service/section you fill in the appropriate fields then select the product/service you are purchasing
- Payment Under a prepaid inventory account and write a check/cheque to the vendor/supplier then categorize:
- Select the plus icon at the top, then Check/Cheque
- Select the vendor/supplier
- Choose another current account such as prepaid inventory then enter the amount of your payment in the itemize Account section.
- Select Save
You can roll the PO to a bill for that vendor/supplier when the inventory is physically received
- Select the Plus icon at the top, then bill.
- Select the name of the vendor/supplier.
- When you select the vendor/supplier, any open purchase orders for that vendor/supplier will appear on the right side of your screen.
- Select Add Purchase Order, but first, locate the purchase order you created
- Select Save.
Re-categorize the payment to Accounts Payable which create a credit for the vendor/supplier, On the previously written check/cheque
- In the check/Cheque screen, change the Accounts Payable.
- Select Save.
Show the bill you create for your vendor/supplier as paid.
- At the top, select the Plus icon and then Check/Cheque.
- Select the vendor/supplier from the drop-down list.
- In the Credits section, select the payment.
- Select the bill to match to the payment in the Bill Payment Information section,
- And ensure that the Amount field at the top is left blank.
- Select Save.
For Additional Help, Dial toll-free QuickBooks Online support +1-855-441-4417.