I am proud to present this bonus video about inventory to you in order to make sure that
you can record every possible type of inventory transaction this is an inventory method that I
created many years ago and it has worked perfectly for clients who need to pay in advance when buying
inventory there are different situations and therefore there are different methods when paying
in advance for inventory or any kind of prepaid product or service however pay from prepaid or pay
from prepaid inventory is the best it really does give you everything you need and everything will
work out perfectly now this method makes sure that your trial balance and the ending balance of every
account in your chart of accounts is correct under generally accepted accounting principles so you
will not need to make an adjustment at any given moment to make the records correct for a specific
time period they will always be correct if you use this method now your vendor records will also be
correct and you will also have a transaction list of every transaction by vendor whether it's paying
in advance or actually receiving the inventory however the only thing that will be missing from
your vendor records in the reports and QuickBooks will be the running balance of the vendor if you
don't have that many transactions for any given vendor it will be very clear what the running
balance is and what the vendor would still owe you in service or product at any given moment
however don't worry about this because I'm going to include a bonus video that will show you in
three simple clicks how you can get the running balance from the vendor by exporting the report
to excel you will see it will be very easy and these methods will give you everything you need
when managing prepaid inventory there is only one simple thing you have to do when you setup
for this method just create a bank type of account in your chart of accounts called prepaid inventory
now this is something called a work around when an accountant says a work around they mean using
the software slightly differently from the way the designers meant you to use it but using it
that way because they need to get a specific outcome and have it not only be correct but
also be convenient for the user so we're making a work around then it will be very very simple
you would not normally call a bank account prepaid inventory but watch and follow and you'll see how
it works for example let's imagine on June 15th hold and paid max produce Corp in advance for
a hundred apples and 50 bananas with check number 161 I happen to know that two thousand dollars of
prepaid inventory that means that on June 15th cash in the bank goes down by two thousand and
prepaid inventory goes up by two thousand let's take a look at how to record it from the main menu
click banking write a check the date is June 15th the check number is 161 and the account that we're
paying from is cash and Bank the account that the money is going to is prepaid inventory even
though it's a bank type of account it's still the account that the money is going to now the money
amount that we're paying is 2,000 and paid to the order of max produce corporation now there's
something very important I have to tell you about the moment that you pay for prepaid inventory
you must remember that you do not put quantity or items when paying in advance for merchandise this
means at the moment that you pay you do not click the items tab you instead click the expense tab
and put in prepaid inventory and that's where the money is going to you should make extensive use of
the memo field and type how you should type the quantity in the memo field if you really need to
write down the future expected quantity a hundred apples fifty bananas okay and any other piece of
information that you might want to add you can put in the memo field when you click Save and close
you can see the result is correct in the trial balance prepaid inventory shows up for the very
first time as two thousand dollars and cash and Bank has decreased by two thousand dollars now the
interesting event is when you actually physically receive the merchandise let's imagine on June
16th we receive twenty apples and ten bananas from the June 15 check to Max produce Corp and
let's imagine we receive them with bill number eight seven eight seven six well that means we
physically received four hundred dollars worth of inventory but let's think about this at the moment
we receive the merchandise we're going to use the write a checks window now remember this is a
workaround we're not really writing a check we're just using the write a checks window to properly
record the event so the numbers come out correctly in the quickbooks reports when we record the check
that we're going to write we select the pay from prepaid inventory account as the account you are
paying from and that means that's what will be on the top of the window and then of course at the
bottom of the window you'll select the items that you receive that will make everything work out
properly now we know that if we physically receive inventory inventory will go up and pray prepaid
inventory will go down let's take a look at how to record it from the main menu click banking write
a check now let's make the date June 16th because that's the day we physically received it now the
check number field is the transaction number field so if it's representing a bill you should put the
bill number in here in fact QuickBooks will even allow you to put bill number so that when you
look at it on the report you understand better what this is pay to the order of Max produce
corporation now do not I repeat do not put a money amount and do not put anything in the expense tab
here choose items and select the items that you physically received so we physically received
20 apples and 10 bananas so we're going to choose apples and we're going to put 20 and we're going
to choose bananas and we're going to put whoops not here we're going to put 10 now that means
that we received 400 dollars of physical inventory but we did not yet do the most important part of
this transaction the pay from account must be from prepaid inventory click OK now that means
that prepaid inventory currently has a balance of 2,000 but we are reducing the balance of prepaid
inventory by the amount of physical inventory that we receive which is $400 so that means
prepaid inventory will be 1600 after we save this transaction and the inventory asset will
have increased by $400 and the individual quantity of the items will have increased on the day that
we received the items click Save and close and when we look at the trial balance you can see
prepaid inventory has decreased to 1,600 and the inventory asset if you double click and you scroll
to the bottom you can see that that particular $400 inventory receipt which is Bill number 8
7 8 7 decreases inventory by $400 now the people who are skeptical about this method will say hey
what about the vendor records the transaction list by vendor report will show you most if not
all of what you need from the main menu click reports vendors and payables transaction list
by vendor push a to get the date range of all transactions regardless of date now when you
look at the section of Max produce court you can see every check where we actually paid for prepaid
inventory and you can see every check where we actually received inventory so here they are
here's the check ooop here's the bill so here's check number 162 where we got inventory here's
bill number 8 7 8 7 7 where we actually received the inventory so you can see the difference
between the transactions where we paid in advance and the transactions where we physically received
the inventory so this lists everything in its most of what you need now you may have to export
this report to excel if you really really need the running balance if you really really need to see
how much max produce Corp owed us for the payments in advance at any given particular moment then
you would have to run an Excel report and just do two or three additional simple steps now the good
news is I'm going to make a bonus video to show you those few extra steps that you have to do in
Excel if you really really need to see the vendors running balance and to know how much the vendor
owed you at any given moment so please watch that video and I thank you for your attention