O'Reilly logo

QuickBooks 2013 For Dummies by Stephen L. Nelson, MBA, CPA

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

The Lazy Person’s Approach to Inventory

The inventory accounting approach that I describe in the previous paragraphs of this chapter is the textbook approach. What’s more, the approach is a really good one because it lets you accurately calculate your cost of goods sold and accurately estimate the value of the inventory you’re holding. To paraphrase Martha Stewart, these are Good Things.

You should know, however, that you can also use a simpler approach to inventory accounting. Specifically, rather than keeping track of individual inventory items by using a perpetual inventory system — this simply means that you track each item when it moves into your business and out into a customer’s car or minivan — you can use a simple periodic system. In the sections that follow, I tell you how a periodic inventory system works in QuickBooks. Then I tell you what’s bad and what’s good about using a periodic inventory system.

How periodic inventory systems work in QuickBooks

If you use a periodic inventory system, you set up an Other Current Asset type account called Inventory. Then, whenever you purchase inventory, you categorize the inventory purchase as falling into this fake inventory account. (I’m calling the account a “fake” inventory account because it isn’t a real inventory account to QuickBooks.)

To record your cost of goods sold each month, you use a journal entry to move an appropriate portion out of the fake inventory account and into your cost of goods sold account. How do you ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required