Inventory, similar to payroll, is one of the most questionable areas for customers, and hence people do some Common QuickBooks inventory accounting mistakes. They are curious to know about QuickBooks inventory asset account problems, inventory valuation summary & adjustments, etc.
Keeping all these things in mind we have prepared this article for you which will try to solve all the above queries as well as answer your below questions.
- What is inventory asset in QuickBooks
- How to add & record inventory
- How to set up inventory in QuickBooks
- What is the difference between inventory and inventory asset in Quickbooks
- What does QuickBooks online allow you to do with a journal entry that QuickBooks Desktop does not?
- How to fix negative inventory
- How to Avoid Common QuickBooks inventory accounting mistakes
- Common QuickBooks Inventory Accounting Mistakes: Incorrect and/or inconsistent inventory procedures
How to Avoid Common QuickBooks inventory accounting mistakes
First, evaluate whether inventory items are installed properly in QuickBooks. Customers usually set items as inventory, when they will better be served using a non-inventory item type. The non-inventory type does not hold a permanent count or average cost.
Second, decide whether the inventory valuation summary report value matches the reported inventory amount on the balance sheet. Disagreements in these two numbers may be due to several factors. The Client Data Review (CDR) tool can help with this problem.
Third, review the inventory valuation summary for negative quantities and incorrect average costs.
Common QuickBooks Inventory Accounting Mistakes: Incorrect and/or inconsistent inventory procedures
Causes of Error
- Inventory Valuation Summary report gives negative scores.
- Inventory Valuation Summary does not match with General Ledger
- Average cost seems inaccurate
- Asset value also not match with the General Ledger
CDR Tool – Compare Balance Sheet and Inventory Valuation
The average cost is the only method available in QuickBooks for inventory valuation. The Inventory Valuation Summary report summarizes the quantity, average cost, and extended value of each inventory quantity and provides a total inventory valuation. The total asset value on this report must coincide with the balance sheet value for the inventory; Just make sure that both these reports were created with the same time/date settings if other users are entering data in QuickBooks at the same time.
The inventory valuation summary will not allow the inventory asset balance on your balance sheet if the journal entry is posted to an inventory account.
Additionally, the inventory item that has been deactivated will cause an inconsistency between the inventory valuation survey report and the sums for the inventory asset account on the financial statements or trial balance. To fix this problem, reactivate the inventory item, create the inventory adjustment (as discussed below), deactivate the item again.
Compare the balance sheet and inventory valuation tools within the CDR determine whether the balance sheet and the inventory valuation summary account match the inventory. The tool compares the inventory general ledger with the inventory valuation summary and displays the results.
- A green circle symbolizes that the inventory account in the general ledger matches with the inventory valuation summary.
- A yellow warning triangle alerts that a discrepancy exists between the inventory general ledger and the inventory valuation summary.
Two major problems of miscalculations are non-inventory accounts affecting inventory transactions and incorrect setup of accounts for inventory items.
The default date for comparison is the last day of the review period specified in the CDR. The date can be changed in the US field and then refreshed to reduce the date when a discrepancy occurs.
In case, if the tool displays a discrepancy then links are provided to items that can assist to fix the issue.
Links to the Balance Sheet and Inventory Valuation Summary
A link to a report that displays transactions using an inventory asset account, but not an inventory item. It allows you to view a report that shows all transactions (like, a journal entry, check, or bill) posted to an inventory asset account. Lists, which do not affect an inventory. item.
For checks or bills, transactions must be updated to add the inventory items on the Items tab and transaction information on the expenses tab removed. If a journal entry is posted to an inventory asset account, the journal entry needs to be deleted or zeroed and an inventory adjustment is made for the appropriate item.
These are links to:
- The Add/Edit Multiple List Entries windows to examine the inventory setup
- Modify Inventory Quantity/Value on Hand
- Item List
CDR Tool—Troubleshoot Inventory
Inaccurately record-keeping of the purchase or sale of an inventory item in QuickBooks can generate various difficulties. Have a negative number for an inventory item is also an issue and can also affect how QuickBooks calculates the average cost. Identifying the specific item and / or transaction that was the cause of the negative inventory situation can take a long time.
The troubleshooting inventory tool helps us to discover inventory errors. A column in the tool displays a yes if a negative value occurred during the review period or at any time. Another column shows inactive items that have a quantity in their hand and another column shows items that have a markup percentage that is less than the specified amount.
- Tool Options: The item lists are displayed in the spreadsheet form. Filter options are displayed at the top left of the screen. The display option’s columns are on the top right and the adjustment list is located below a link window for the hand adjustment window on the quantity/value.
- Filter Options: Items can be separated for all or only active items, negative quantities, passive items with quantities on hand, and a% of profit less than a particular percentage.
- Marking Items as Inactive: Items from this window can be marked as inactive directly. Mark which items you want to consider as inactive and then select Make Selected Items Inactive.
- Negative Inventory: Negative inventory is symbolized by yellow caution signs and a yes / no message in the right column. Double-click on the amount that is showing negative and the inventory valuation report seems.
Note: This tool does not have the ability to automatically fix a negative list because the fix may vary from situation to situation. But, you need to make an adjustment to the inventory item by clicking the adjusted quantity/price on the hand link(bottom of the window). Negative inventory alerts can be displayed by selecting the desired option in the lower right corner of the window, according to the date or any time frame.
- Customizing Columns: Click the Columns to Display link to customize the spreadsheet format. Note: By default, all available columns are marked so available columns are displayed and unwanted columns can be easily removed from this window. To remove a column, click the checkmark next to the column name and click Save.
In QuickBooks, you are able to buy or sell any item of your business. Let’s consider any item you will purchase and sell later. The item is the underlying link between the invoice and the bill or check which is the general ledger. Sometimes small items between items sold require multiple items, and sometimes a common item will be sold when the item sold is actually a little different. This determination is made based on the level of detail required by management and the potential difference in the cost of goods purchased and sold.
There are several ways to gain accurate general ledger results. Analyze these item lists:
- Verify that the items have been set up accurately and
- Verify that the judgments made are relevant for the business and also must be based on the flow of paperwork, accounting knowledge, QuickBooks experience, etc.
While designing an item, a number of item types are available. The type is also essential for subtotals on the report and also for some function choices.
Following is the list of types and the regular use for each:
- Service: Typically applied for items such as labor, consulting, hourly charges, etc., a service type item is required for use on timesheets.
- Inventory part: Items sold are normally kept in stock. This item type holds a balance of quantity and a starting average cost. This item type will record the purchase to another current asset account when purchased and will enter the corresponding entry with each invoice to record the appropriate amount for the cost of goods sold. A further detailed discussion of these types of objects is beyond the scope of these materials.
- Inventory Assembly: In this Item are made from other inventory items (ie, assembled) are then sold in stock. This item type will record the purchase to another current asset account when purchased and review the appropriate amount for the cost of goods sold when an invoice or cash sales receipt is created.
- Non- Inventory parts: Items do not keep in stock. This may include items such as a custom or special orders. This item type is also used if the average cost method of evaluating inventory is unacceptable or continuous inventory counts are not necessary. As the items are purchased, they simply expel.
- Other Charge: Freight, service charge, fuel surcharge, gift-wrapping services or other expenses that are passed on to the customer are good examples of all other types of goods.
- Subtotal: A special item type that allows a subtotal line on an invoice line to accumulate amounts due to all lines previously entered.
- Group: This item type is applied when multiple items are sold at a time. The group item adds flexibility to print all individual components on the customer’s copy of the invoice or only showing the detail on the screen with one line on the printed copy of the invoice merging the details concurrently.
- Discount: The reduction in the invoice can be either a flat dollar amount or a percentage of the line, immediately preceding it. If a discount is to be given on each item, the discount will be entered after each item, or once after the subtotal of all items.
- Payment: If payment is received at the time of the invoice, this item type can be used. If the client uses a statement, the statement will only show the net of the transaction, not the statement. If it is important to show the payment on the details, it may be preferred to file an invoice and create a payment transaction received. The payment item type can be used for a customer whose customers prepay or make a deposit.
- Sales Tax: This item will calculate the tax liability based on the tax percentage entered, based on the customer is taxable, and the item being taxable.
- Sales Tax Group: A set of sales tax items that allow a business to show a tax rate, as a state, counties, and/or local sales tax item, such as an item on an invoice or sales receipt. Currently, Sales Tax Group reports are not available within QuickBooks. The absence of this report does not make this type of item the preferred method of tracking sales tax.
Inventory Quantity or Value Adjustments
If you want to analyze the details of inventory values then follow these steps:
- Choose the Reports menu > Inventory.
- Then, select the Inventory Valuation Summary.
This report gives you the data regarding the quantity on hand and also the value that is assigned in Inventory.
QuickBooks uses the average cost for the list price. The complete asset value on the report must be allowed with the same date and time of the balance sheet value for the inventory. These numbers may be different if users create journal entries and post them directly to the inventory account. The inventory adjustment function always used to adjust the inventory values instead of the journal entry.
Create the following report to identify transactions posted to the inventory account through journal entries.
- First, go to the Chart of Accounts.
- Click on Inventory, on the bottom of the screen select the Reports tab, and later choose QuickReport
- Under QuickReport, look for Modify Reports, and then Filter the transaction type for all date ranges and in the journal entry.
The exact method to execute a change to Inventory for quantity changes or value changes from Vendors is:
Vendors > Inventory Activities > adjust Quantity/Value on Hand.
I Hope, you better understand the common QuickBooks inventory accounting mistakes and also Inventory item types. But if you still have any queries or issues, please feel free to reach us on+1-855-441-4417 and discuss your issue with our Intuit certified ProAdvisor and get instant solutions.