if buying and selling merchandise is the main part of your business operation you need to
activate the inventory module what does it mean to activate inventory and what happens to your
file well you then gain the ability to track the quantity and you'll have reports that will show
the quantity that you purchased the quantity that you sold as well as the change in quantity of the
items that you currently have you will also have additional menu choices under the vendors main
menu specifically for managing your inventory after you activate inventory one of the item
types that it will then be available to you will be called inventory part and that's an additional
item type that's added to the item type list when you put in your inventory items the last
thing that will happen is that QuickBooks will automatically put additional accounts in the
chart of accounts specifically to track the money when you buy and sell merchandise let's take a
look at what the file looks like before and after each of these changes when we look at the reports
main menu right now we see different categories of reports but we do not see a special category
for inventory with inventory related reports however as soon as we activate inventory there
will be an additional category of reports called inventory that will help you track your quantity
and the changes of your merchandise another thing that happens when we activate inventory is that
additional menu choices are added under the main menu tab for vendors well right now when I click
vendors there are very few in there are very few main menu choices as compared to the other
categories however after we activate inventory you will see additional main menu choices here
in the submenu specifically for managing your inventory what else happens after we activate
inventory inventory part is added as an item type right now when we open the items list we
see the items we have been working on so far if we click item new we do not see inventory part
as one of the choices as an item type right now we only see non inventory part however after we
activate inventory inventory part will be added to this list as one of the possible item types
what else will happen the last thing that will happen is additional accounts are added to the
chart of accounts and those accounts will be explained after we activate inventory
from the main menu click edit preferences and the category of preferences is items and inventory we
click the items in inventory category and there are no personal preferences but in the company
preference tab of that category we have this magic box inventory and purchase orders are active when
we click to check the box all these other options become available and we will leave the defaults
for now again all you have to do is click the checkmark into the box clicking once activates
inventory now we click OK how do we know that inventory is active it doesn't look like anything
changed however now when we click from the reports main menu we see inventory reports have been added
to the list of choices of available reports when we click in the vendor tab we notice we have very
much more choices since a moment ago when we took a look at this vendor pull down menu these are
specific for inventory even these even though they don't use the word inventory and of course
when we click on the list for the items list we can see if we were to choose new item we now have
inventory part available as one of the choices when putting in items on the items list and our
file is physically different you may well ask what accounts are added when you activate inventory
well when we clicked on that preference QuickBooks added an account to the chart of accounts called
inventory asset inventory asset is the purchase cost of the merchandise that we still have its
merchandise that we purchased that we did not yet sell to the customer QuickBooks also automatically
added an account called cost of goods sold cost of goods sold is the purchase cost of the merchandise
we sold and gave already to the customer now unfortunately you have to add your own sales
income account you yourself have to put an account in your chart of accounts to hold all the money
that comes in from the customer this will hold the accumulated total of all of the sales price of all
of the merchandise that was sold to your customers we open the chart of accounts the normal way list
chart of accounts notice we now have cost of goods sold and the type of account that cost of goods
sold is is cost of goods sold notice even though it will behave like an expense it is technically
contra income so it has its own special account type and it's something that QuickBooks put on
the list for you notice QuickBooks already put inventory asset and the type is other current
asset and it belongs in the asset section because you still own this inventory and it has value
let's put an account called sales on the list and let's make it an income account like we learned
before from the bottom left account new income account service sales product sales covered under
the income account type click continue and will type one word sales and we will know this is the
income from the merchandise sales save and close and now we have it on our list congratulations
your file is now ready to record transactions where you purchase and sell merchandise