do you sometimes pay immediately at the moment that you receive your merchandise
from your vendor well then you should watch this video purchasing merchandise for cash
if you have any questions about this topic you can leave them in the comments section below and
i'll do my best to help you and of course if you feel the video helped you i hope you will
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we pay vendors immediately for merchandise that we receive today we can write a check
if that's what we're giving them or if we pay online we can use the expense type of transaction
that quickbooks online makes available the result will be the same our cash will be
negative temporarily until we start selling so just for illustrative educational purposes just
imagine we have a line of credit with the bank and we will owe them in our bank account until
we start selling that will help you understand the numbers a little bit better so what happens in our
quickbooks records at the moment that we purchase inventory and pay for the inventory immediately
well the cash in the bank goes down and in our case will become more negative
and the inventory asset that we discussed in a prior video will increase that inventory asset
represents the total money that we paid for all of the merchandise that we currently have for example
let's imagine on january 2nd of 2020 we paid addie's orchard with check number two to buy a
hundred apples that we receive today can you guess the check amount well if you remember that we buy
them for ten dollars each because that's how we set it up in the items list in the previous video
then ten dollars each and we buy a hundred means we're paying addy a thousand dollars
to buy inventory now this is what the trial balance looks like before we record
this check but if we pay a thousand dollars to purchase inventory that we still have
it means a thousand dollars will show up as the balance of the inventory asset and if we paid from
cash in bank and we already have a negative 300 that means cash and bank will become more negative
and it will become 1300 on the credit side and this is what the trial balance should look like
after we write our check for our first merchandise purchase from the top left we click
new go over to where it says vendors and click check and here we are writing check number two
the date we're writing the check is january 2nd of 2020 the payee is addy's orchard now you have
to be careful down here you probably see category details and you probably don't notice item details
you have to click the triangle up to remove category details because we're not paying an
expense and click the triangle where it says item details because we're buying something that's
on the products and service lists so after you open item details click directly under the word
product service to bring the pull down arrow now choose apples notice quickbooks remembers
that the rate per apple is ten dollars each and we're buying 100 that means we're writing a check
to addie's orchard for a thousand dollars and we have a thousand dollars worth of inventory in our
warehouse and in our records now when we click save and close the numbers on the trial balance
are exactly as what we predicted in advance we have a thousand dollars worth of inventory
and a debt to the bank of 1300 but there is another place to check the results
if we click reports and we click inventory valuation detail you can see that the reason why
we have a thousand dollars in the inventory asset is because we have a hundred apples
that we pay ten dollars each and if the cost is a thousand that means the asset value is a thousand
so this report explains the details of the inventory asset account in the trial balance
and now let's let's imagine on january 3rd we paid sam's farm with an online transfer
for a hundred bananas that we receive today can you guess the amount it's not really a check it's
an online payment but can you guess the amount that's correct that would be two thousand dollars
because we buy them for twenty dollars each and we're paying 400 of them so the amount we're
giving is 2 000. so what will be the result in the trial balance after we pay this 2000 well cash
will become very negative three thousand three hundred but inventory asset will increase from
one thousand to three thousand because if we pay two thousand more to buy two thousand more worth
of inventory that means the account increases by two thousand and we will now have three thousand
dollars worth of inventory sitting here in our warehouse available for sale so if we're not
writing a check we click new and if it's an online transfer we click expense now you may notice
let's close this you may notice the expense window is the same as the check window we're paying
sam's farm remember we're not buying uh we're not paying for services or expenses you have to click
item details the date by the way is january third that we're actually paying and in the
reference number field you should put the number that the bank or the company gave you as the
transaction number so you can trace it back later to the statement but it's the same idea as check
number if you're paying online now click directly under product and service and this time choose
bananas quickbooks remembers we buy them at twenty dollars each because that's how we set them up in
the items list and if we are buying a hundred of them that means excuse me only a hundred
that means we're paying sam's farm with an online transfer of two thousand dollars
to buy two thousand dollars more worth of inventory click save and close and now the numbers
are exactly as what we expected we now paid a total of three thousand dollars for inventory
and we now owe a lot of money to our bank but you may well ask why do we have three thousand dollars
in the inventory asset the answer is in the report called inventory valuation detail double click
and you will see go to the right a little bit if we have a thousand dollars worth of apples
and now we also have two thousand dollars worth of bananas that means the total asset value here
is one thousand plus two thousand that means we have three thousand dollars of inventory
available for sale and that's the reason why inventory asset says three thousand dollars
you