Purchasing Inventory

Purchasing and paying for inventory items is mostly the same as paying for other expenses. But as you learned in Chapter 4, inventory always seems more complicated than the other things you sell. Part of the problem with inventory is that you have to keep track of how much you have. As inventory wends its way from your warehouse to your customers, it also hops between accounts in your chart of accounts; An income account tracks the money you make from selling inventory; a
second account tracks the costs of the inventory you’ve sold; and a third asset account tracks the value of the inventory you still own.

Purchasing inventory involves three transactions in QuickBooks:

• Adding the inventory you purchase to a QuickBooks inventory asset account.

• Entering the bill you receive for the inventory you bought.

• Paying the bill for the inventory.

What’s tricky is that you don’t know whether the bill or the inventory will arrive first. In many cases, the bill arrives with or after the shipment. But Samurai Sam could email you a bill while you wait weeks for your swords to arrive. You don’t want to pay for products you haven’t received—nor do you have to. In the following sections, you’ll learn how to use QuickBooks’ commands to handle any order of bill and inventory arrival.

If you want to track inventory in QuickBooks, your first task is turning on the preference for inventory and purchase orders if you didn’t do that during the EasyStep Interview. Although the program turns on purchase-order features as part of tracking inventory, you can skip purchase orders if you don’t use them in your business.

As soon as you turn on inventory, the following appear in QuickBooks:

• Icons for purchase orders and inventory on the Home page.

• Inventory-related commands like Create Purchase Orders and Receive Items on the Vendors menu.

• A non-posting account called Purchase Orders in the chart of accounts. W

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Creating Purchase Orders

Before you get to receiving inventory and paying the corresponding bills, it’s a good idea to make sure that the inventory you ordered actually arrives. If you ordered corsages for Mother’s Day but the box that shows up contains corsets, the mistake is obvious. Remembering what you ordered is tougher when products and quantities vary. Most businesses address this problem by creating purchase orders for the inventory they buy. That way, when the order arrives, you can compare the shipment to the purchase order to confirm that the items and quantities are correct. Because purchase orders are typically the first step in purchasing, the QuickBooks Home page places the Purchase Orders icon in the pole position in the Vendors panel.   

Note: You can create all the purchase orders you want without altering the balances in your income, expense, and asset accounts; and the purchase orders won’t appear in your Profit & Loss or Balance Sheet reports. That’s because purchase orders are known as non-posting transactions: No money changes hands (or accounts), so there’s nothing to post in your chart of accounts. In QuickBooks, the first posting for purchased inventory happens when you receive either the inventory or the bill.

The Create Purchase Orders dialog box is like a mirror-image of the Create Invoices dialog box that you’ll meet in Chapter 10. You choose a vendor instead of a customer, and the Ship To address is your company’s address,.

Here’s how you create a purchase order:

1. On the Home page, click the Purchase Orders icon (or choose Vendors➝Create Purchase Orders). In the Create Purchase Orders window, QuickBooks fills in the current date, and there’s no reason to change that because purchase orders are a paper trail of what you order.

2. In the Vendor box, choose the vendor you’re ordering inventory from. QuickBooks fills in the Vendor box in the header area with the vendor name and address as shown in Figure 9-6.

Note: If you use multiple currencies, the vendor’s currency appears to the right of the vendor’s name. The “Exchange Rate 1 <unit> =” box becomes active below the Item table if the vendor is set up to use a currency different from your home currency.   •‰â•‰â•‰â•‰Purchasing Inventory

3. If you use classes to categorize income and expenses, choose a class for the purchase order. If you use classes and skip this box, QuickBooks politely reminds you that the box is empty when you try to save the purchase order. If that happens, click Cancel to return to the purchase order so you can choose a class, or click Save Anyway to save the purchase order without a class.

4. If you’re ordering inventory that you want shipped directly to one of your customers, in the Ship To drop-down list, choose that customer (or job). QuickBooks changes the shipping address in the Ship To box from your company’s address to the customer’s or job’s address.

5. If you’re creating your first purchase order, in the P.O. No. box, type the number that you want to start with. From then on, QuickBooks increments the number in the P.O. No. box by one. If you order your products over the phone or through an online system and the vendor asks for your purchase order number, give them this number.

6. In the drop-down list for the first Item cell in the table, choose the item that corresponds to the first product you’re purchasing. The Item drop-down list shows all the entries in your Item List, even though companies usually create purchase orders only for inventory items. (As you type the first few letters of an item’s name, QuickBooks displays matching entries. You can keep typing or click the item you want as soon as you see it.)

When you choose an item, QuickBooks fills in other cells in the row with information from the item’s record (see Chapter 4). The Description cell gets filled in with the item record’s description, which you can keep or edit. The Rate cell grabs the value from the Cost field of the item’s record (that’s the price you pay for the item).

7. In the cell in the Qty column, type the quantity you want to purchase. QuickBooks fills in the Amount cell with the total purchase price for the item: the quantity multiplied by the rate.

8. If you’re purchasing inventory specifically for a customer or job, choose the customer or job in the drop-down list in the Customer column. The Create Purchase Orders dialog box doesn’t include a column for designating purchases as billable. Don’t worry: You tell QuickBooks that an item is billable when you create a bill or receive the item into inventory.

9. Repeat steps 6 through 8 for each product you’re purchasing.

You can insert and delete lines in a purchase order. To insert a line, right-click a line and then choose Insert Line from the shortcut menu. To delete the line, choose Delete Line from the shortcut menu.   

10. At the bottom of the Create Purchase Orders dialog box, in the Memo box, type a summary of what you’re ordering. The contents of the Memo field show up when it’s time to apply a purchase order to a bill (as you’ll learn shortly), making it easy to identify the right purchase order.

11. If you have additional purchase orders to create, click Save & New to save the current purchase order and begin another. To save the purchase order you just created and close the Create Purchase Orders window, click Save & Close. Click Clear to throw out your choices or changes on the purchase order.

Receiving Inventory and Bills Simultaneously

For many orders, you’ll find your bill tucked into one of the boxes of your shipment like a bonus gift. Although a bill isn’t the most welcome of gifts, receiving a bill and inventory simultaneously is a bonus because you can record your inventory and the accompanying bill at the same time in QuickBooks. Here’s how:

1. On the Home page, click Receive Inventory and then choose “Receive Inventory with Bill”, or choose Vendors➝“Receive Items and Enter Bill.”

Either way, QuickBooks opens the Enter Bills window that you first met and automatically turns on the Bill Received checkbox just as it does when you create a regular bill. The difference comes to light when you choose a vendor,

2. In the Vendor drop-down list, choose the vendor who sent the bill. QuickBooks looks for any open purchase orders for that vendor.

3. If there are any open purchase orders for that vendor and you want to apply the shipment you received to one of them, in the Open POs Exist message box, click Yes. (If the items you received don’t go with any open purchase orders, click No and skip to step 5.)

QuickBooks opens the Open Purchase Orders dialog box (shown in the foreground in Figure 9-7). This dialog box lists only purchase order dates, purchase order numbers, and memos.

If the vendor’s bill includes the purchase order number, picking the correct one is easy. Or, if you filled in the Memo box when you created the purchase order, that note may help you identify the purchase order. But if you don’t know which one to pick, click Cancel to close the Open Purchase Orders dialog box. Then, to view a report of open purchase orders, choose Reports➝Purchases➝Open Purchase Orders. Double-click a purchase order to view its details, and then head back to the Open Purchase Orders dialog box once you know which one to select.

4. To apply the shipment to an existing purchase order, in the “Select a Purchase Order to receive” table, click the checkmark column (the first column) for the purchase order you want, and then click OK. QuickBooks displays a checkmark in the purchase order’s checkmark cell. When you click OK, the program closes the Open Purchase Orders dialog box and fills in the bill fields with purchase order info, like the amount and the items ordered, , click Show PO.   •‰â•‰â•‰Purchasing Inventory

Tip: It’s always a good idea to compare the quantities you received in the shipment to the quantities on your purchase order. If you received fewer items than you ordered, in the Qty cell for the item, enter the number you actually received and adjust the amount due to match what you received.

5. In the Date box, fill in the date when you received the bill. If you’ve already defined the payment terms in the vendor record, QuickBooks fills in the Terms box and automatically fills in the Bill Due box. If the bill you received shows different terms or a different due date, update the values in the Bill Due and Terms boxes to match the vendor’s bill. (When you save the bill, the program offers to save the new terms in the vendor’s record.)

6. If you didn’t create a purchase order for the shipment you received, fill in the fields as you would for a regular bill. In the Amount Due field, type the amount due from the vendor’s bill. You’ll also have to fill in the Items tab manually. For each item you received, in a blank line in the Items table, specify the item, quantity, customer or job, and class. QuickBooks fills in the Description and Cost cells using the values in the item’s record (see Chapter 4) and then calculates the Amount by multiplying the quantity by the item’s cost.

7. Click Save & New or Save & Close. When you save a combination inventory/bill transaction, QuickBooks goes to work behind the scenes. For the inventory you received, the program debits your inventory account for the amount you paid for the items, and updates the quantity on hand for the item. It also increases the balance in your Accounts Payable account by the amount of the bill.

 Tip: If you want to see how many of a particular product you have on hand, on the Home page, click Items & Services. In the Item List window, look at the Total Quantity On Hand column for the item you’re interested in.

Receiving Inventory Before the Bill

When you receive inventory, you want to record it in QuickBooks so you know that it’s available to sell. If you receive inventory without a bill, the best solution is to pretend that you received the bill. By creating the bill in QuickBooks, your Accounts Payable stays in sync with what you’ve purchased. Then you can simply edit the bill later to match the real one you receive.

Another approach is to record the received inventory in QuickBooks without a bill. (You can do this because the program has separate commands to receive inventory and enter bills when they arrive.) The fields that you specify and the options at your disposal are the same as when you receive inventory with a bill (as described in the previous section), they just appear in different windows.   

To receive inventory in your company file before the bill arrives:

1. On the Home page, click the Receive Inventory icon and then choose “Receive Inventory without Bill”, or choose Vendors➝Receive Items). QuickBooks opens the Create Item Receipts window, which is a close relative to the Enter Bills window. In fact, other than the title of the dialog box, only three things are different, all of which are shown in Figure 9-9.

Tip: If you choose “Receive Inventory without Bill” (or Vendors➝Receive Items) and then realize that you do have the bill, there’s no need to close the window and choose a different command. Simply turn on the Bill Received checkbox in the top-right corner of the Create Item Receipts window. The window then changes to the Enter Bills window, so you can receive the items and create the bill at the same time.

Similar to what happens when you receive inventory and a bill at the same time, the Create Item Receipts window reminds you about open purchase orders that you can select to fill in the items received automatically. The rest of the fields behave like the ones in the Enter Bills window.

2. When you’ve added all the items you received and updated any quantities that differ from those on your purchase order, click Save & Close. QuickBooks records the inventory in your company file. Figure 9-9:╇ Because you’re only adding inventory to your company file, QuickBooks automatically turns off the Bill Received checkbox in the Create Item Receipts window. To make it crystal clear that you aren’t creating a bill, the program displays the words “Item Receipt Only” and, in the Memo box, adds the message “Received items (bill to follow)”.

Then, when the bill for the items you received finally arrives, here’s what you do:

1. Choose Vendors➝“Enter Bill for Received Items”, or on the Home page, click the Enter Bills Against Inventory icon.

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2. In the Select Item Receipt dialog box, choose the vendor that sent the shipment; then choose the shipment that corresponds to the bill you just received and click OK.

QuickBooks opens the Enter Bills window and fills in the fields with info from your Receive Items transaction.

3. If the prices and quantities on the vendor’s bill are different from those Quick- Books used, on the Items tab, update the prices and quantities. When prices and quantities differ, don’t take the vendor’s bill as the final word— check your record to see where the discrepancy arose.

4. If the bill includes sales tax and shipping that you didn’t include on your purchase order, click the Expenses tab, and then fill in additional lines for those charges. If you changed anything on the Items or Expenses tab, click Recalculate to update the Amount Due field with the new total.

5. Click Save & Close. You’ll see a message box asking if you want to save the changes you made—even if you didn’t make any. QuickBooks asks this question because it has changed the item receipt transaction to a bill in your Accounts Payable account. Click Yes to save the changes.

                                                                                                    

Handling Reimbursable Expenses

Reimbursable expenses are costs you incur that a customer subsequently pays. For example, you’ve probably seen telephone and photocopy charges on your attorney’s statements. Travel costs are another common type of reimbursable expense. Products you purchase specifically for a customer or a subcontractor you hire for a customer’s job are all costs you pass on to your customers. In QuickBooks, as in accounting, there are two ways to track reimbursable expenses:

• As income. With this method, QuickBooks posts the expenses on a bill you pay to the expense account you specify. When you invoice your customer, Quick- Books posts the reimbursement as income in a separate income account. Your income is higher this way, but it’s offset by higher expenses. This approach is popular because it lets you compare income from reimbursable expenses to the reimbursable expenses themselves to make sure that they match.

• As expenses. Tracking reimbursements as expenses doesn’t change the way QuickBooks handles bills—expenses still post to the expense accounts you specify. But, when your customer pays you for the reimbursable expenses, QuickBooks posts those reimbursements right back to the expense account, so the expense account balance looks as if you never incurred the expense in the first place.

Note: If you track reimbursable expenses as expenses, you don’t have to do any special setup in QuickBooks. When you pay a bill, the expenses simply post to the expense account. When you invoice a customer, you add the reimbursable expenses to the invoice. When the customer pays the invoice, QuickBooks posts the reimbursements back to the same expense account. WORKAROUND

Setting Up Reimbursements

As Income If you want to track your reimbursable expenses as income, you have to turn on the Track Reimbursed Expenses As Income preference. To do that, choose Edit➝Preferences➝Time & Expenses. Then, on the Company Preferences tab, turn on the “Track reimbursed expenses as income” checkbox. With this preference turned on, whenever you create or edit an expense account (in the Add New Account or Edit Account windows), QuickBooks adds a “Track reimbursed expenses in Income Acct.” checkbox and drop-down list at the bottom of the dialog box,

Here’s what happens as you progress from paying your bills to invoicing your customers:

• When you assign an expense on a bill as reimbursable to a customer, Quick- Books posts the money to the expense account you specified.

• When you create an invoice for that customer, the program reminds you that you have reimbursable expenses. • When you add the reimbursable expenses to the customer’s invoice, they post to the income account you specified for that type of expense.

Recording Reimbursable Expenses

As you enter bills or make immediate payments with checks or credit cards, you add designated expenses as reimbursable. When you choose a customer or job in the Customer:Job column, QuickBooks automatically adds a checkmark to the “Billable?” cell. Be sure to type a note in the Memo cell to identify the expense, because QuickBooks uses the text in the Memo field as the description of the reimbursable expense on your invoice.   Your Bills

Note: Sometimes you want to track expenses associated with a customer or job, but you don’t want the customer to reimburse you, like when you have a fixed-price contract. In that situation, click the “Billable?” cell for that expense to remove the checkmark.