Rustler’s Quickbooks Tips

Do not use a non-inventory item in an assembly build, it does not work the way QB help says it will. What will happen is that the cost you enter in the cost block on the non-inventory item will go to COGS immediately when the build is created. That is wrong the cost should be held in the cost of the build and not sent to COGS until the build is sold.

QB does not hold the value of a non-inventory item marked for resale as it should, so when you use it in a build there is no value to add to the cost of the build. So what QB does is take the amount you entered in the cost block of the non-inventory item and send it to COGS immediately.

Since you had an expense when you bought the non-inventory item, using the non-inventory item in a build, adds that expense again in COGS. Not only is doubling expenses, but COGS should not have an entry until the assembly is sold.

Correction

Charlie Russell said it worked for him (see the comments for this entry) so I went back experimenting. IF, the key word is IF, you or QB enters the cost of the non-inventory item in the cost block below the description block before using it in an assembly (building the assembly), then it will work. For some reason my version of QB will not make that entry when I buy a non-inventory item.

What I did notice though, was the assembly build is keeping average cost based upon the  previous builds too, so if the earlier builds used the non-inv item without the cost block filled in, the average cost is wrong.  When the cost block of the non-inv item is filled in it works as Charlie says and the average computed cost starts increasing.

When you issue a build for an item, you will not see a change in inventory asset on the balance sheet.

What happens is that QB takes the value of each item that is used to make the build out of the inventory asset account, adds them all up, and puts that value back in the inventory asset account as the new item that you built.

A zero sum entry, the value taken out equals the value added.

As near as I can tell QB has used averaged cost since its’ inception.  There is no way to change average cost with out some major hurdles that I won’t get into because they involve too many steps and are prone to errors.   I have messed with this trying to get it to work for some time and there is just no easy way.

It makes no sense to me why QB refuses to implement FIFO or specific cost, even though as QB once told me “FIFO has long been a request of QB users.”

When you consider that QB is made by Intuit, who also makes Quicken, and Quicken does Specific Cost really well (Stock Portfolios) you would think that the two divisions would talk to each other and share programming code and at least implement specific cost in QB.

But like most large corporations one department doesn’t seem to talk to another.  Must be the “I can secure my job if I can do what others can’t, so don’t share” theory of job security.

The secret programming aspects don’t stop with cost though, Quicken can pack the data base, Quicken can archive past years data and reduce the file size - none of which QB can do.

If FIFO, LIFO or specific cost is important, all of QB’s competitors do one or more of them.

Quite often I see this in the QB forum, a question about bulk inventory items and how to track them for COGS. Mostly from restaurants, but also from auto service where they buy bulk oil and shop supplies.

It is pretty hard to track how much flour (as an example) you use on a day to day basis, and yet flour is an inventory item and its’ cost should be tracked.

What I suggest is to order and stock your flour and stock it in the container it comes in. In other words if you order 10-pound bags, then stock it by the bag.

When you take a bag off the shelf to use it in the kitchen, use inventory adjust and set the adjusting account to COGS, then lower the quantity of the items taken off the shelf and click ok.

It is not a 100% day by day accurate way to track bulk items but over time it works out just fine since the only reason you would take a bag off the shelf is because the old bag is used up.

Use your imagination and replace flour with what ever you are buying in bulk, booze, salt, grease, oil, solvent, what ever.

The IRS says that any cost involved in acquiring an item for resale, or in building an item for resale is COGS. That includes taxes, shipping, import duties, etc. (pub 538)The IRS also says that COGS for an item must be expensed during the year the item is sold. [Sold not purchased.] (Rev Rul 71-234)

Basically then there is two ways to approach including shipping (et al) in the COGS calculations.

You can carry the total cost of shipping (etc) as an entry to COGS at the time of purchase. Then at the end of the year you are supposed to determine if the entire number of items for each shipping expense has sold. If it has then no problem, otherwise you are supposed to do a journal entry to offset the shipping amount that is to be carried forward to the new year for the unsold items. So what you end up at year end is inventory being carried forward and shipping costs for inventory on hand being carried forward. IMO this would be hard to track.

Another way to do this is to allocate the shipping, etc to the cost of the item at purchase time. When I receive several items on a purchase order and there is freight involved, I ‘guesstimate’ the relative shipping portion of shipping for the line items. On receipt, I will tab over to the total column for each line item and allocate a portion of the freight. When I change the total for the line item QB will recalculate the price per item. This new cost per item is saved in QB and used to determine average cost. That average cost per item is used to post to COGS when the item is sold, and this complies with the IRS requirements to expense inbound freight, etc in the year the item was sold.

Out bound shipping, the shipping you pay to send the item to your customer, is an expense and not COGS.