does your amazon online store need an inventory adjustment so you can calculate your profit
each month well then you should watch this video cost of goods sold adjustment
for calculating the monthly profit for your amazon online store 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 click like
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how do you know your monthly profit from your amazon online store well
you know the money that comes in is the amount of gross sales that goes into the account that
we call and amazon calls product charges that's the gross sales that were recorded as each sale
happened and represents the sales price from the items that were sold to your customers
you must subtract what you paid for those items in order to know your gross
profit but how do you know what you paid for the specific products that were sold
well we know that the main calculation for finding out your profit is sales income
minus what you paid for the merchandise that you gave the customer which is cost of
goods sold equals your gross profit and it's this middle number that we have to focus on
and we learned in a prior video that cost of goods sold is equal to beginning inventory
plus purchases equals the goods available for sale goods available for sale minus your ending
inventory equals your cost of goods sold so when you look at these numbers you know that your cost
of goods sold is 600 because 750 dollars of goods available for sale that you were able to sell
minus 150 dollars in ending inventory that you did not sell equals six hundred dollars
which is the cost of goods sold that's what you paid for the merchandise that went out
so how do we do this in quickbooks well if you look at the prior video the one that we
recorded the deposit from or the deposit statement these were your accounts in the chart of accounts
and it was that account product charges that represents the sales that is what represented
the money that came in from the customers now we must add three additional accounts
to the chart of accounts in order to be able to have quickbooks find your cost of goods sold
first we have to put an account called inventory asset and that's a current asset and if you
watched the prior video then you know that that represents the beginning inventory of one month
which is the same as the ending inventory of the next actually it's vice versa the
ending inventory of one month which is the beginning inventory of another month
in the left panel click accounting chart of accounts now quickbooks already comes with
a lot of accounts so you might already have an inventory asset on your list if not then click
new and the account type would be other current asset and the detail type would be inventory and
you could leave the name we'll type hours in capital to indicate that we typed it in
now save and new the other account we have to add is a purchases account
that account will represent the total money spent on new inventory during the current month
and the type of account that it should be is cost of goods sold now again
quickbooks comes with let me show you quickbooks comes with a lot of accounts already so you might
already have an account called purchases the problem is that the category is expense
so we have to edit the account because we don't want it to be an expense we want it to be part
of the cost of goods sold calculation so if you already have it in your chart of accounts
just change the account type and again the detail type really doesn't matter as long as
it's a cost of goods sold account it will appear in the correct place of your profit and loss
so we click save and new and then we click yes now the last account that we have to add
is cost of goods sold that's the actual account that will show up in the income section of your
profit and loss and the type also has to be cost of goods sold and again it's possible it's
possible that you might already have it depending on your subscription so we already have an account
called cost of goods sold which is type cost of goods sold so if you don't have it you would
create it like this you would click account new and it would be cost of goods sold type of account
and of course it wouldn't really matter and you would type in cost of goods sold
and after you click save and new we can't because we already have one after you save
it you will then have the accounts you need to make your monthly adjustment to find your profit
now if you remember our example statement deposit in the prior video that date was april third of
2019 so we are imagining that our example month was april 3rd of 2019 that was shown in a prior
video but the prior deposit recorded sales meaning the income into an account called product charges
that was our income from sales account everything else that we recorded in the previous video
was listed as an expense that lowered the profit on the profit and loss we should however in a real
situation have had an april 1 inventory asset with a balance coming from the previous month
in other words we were pretending that april of 2019 was the very first month that we uh started
doing a business with amazon but if it were not then we would have had a balance in the inventory
account that represented the end of march balance which is the same as the beginning of the april
balance that was would that's what would have been the situation if we were doing this continuously
so what we have to do in order to make this example understandable is to put in
april's beginning balance you will not do this in real life i'm only doing this now
so we can pretend that we had a balance in inventory on april 1 that came from the end
of march because if we had a balance on april 1 we would then be able to see the full set of
adjustments for the cost of goods sold calculation and by the way if you started your business
with inventory on hand the adjustment i'm about to show you would be the adjustment you would
make to acknowledge that you had inventory on hand before you started selling on amazon so
we were pretending that we had that we paid four thousand dollars for the beginning inventory
and this is the way you would do it you would click new and you'd go over to journal entry
now the date of course will be april 1 of 2019
and the account would be our inventory asset
okay uh i guess inventory current asset and we would debit the account
for the amount that we started doing business with at the moment we started doing business and
any accountant will tell you that if you're doing a setup journal entry which is what this is
the balancing account is opening balance equity and then we would just click save and close so
that's what you would do only if you had inventory on hand before you started doing business with
amazon and now our beginning inventory is set up in fact let's take a look at the trial balance
you can see that inventory april 1 which is what we are pretending that we finished with
for the end of march is 4 000 and of course opening balance equity
that's just the account we use to balance out setup adjustments now we're going to really
pretend that we're at the end of april and we have to adjust inventory to find our cost of goods sold
and our gross profit so now let's record purchases of inventory during april so we set
up the beginning inventory for beginning of april then we recorded the deposit on april third now
we're recording purchases during april so let's imagine during april we purchased inventory twice
first on april 9 we paid maggie the merchant a thousand dollars for inventory that we plan
to sell well that's very simple we click new expense and don't worry about this and
if maggie the merchant is not on the list we click add new and we type in her name
and then we click save uh by the way she's a vendor we click save good now
the date that we purchased from her is april 9th and we choose the purchases
account because that's the account that we record the purchases in
and we paid a thousand dollars to maggie on april 9th for the merchandise that we intend to sell
save and close and you can see purchases shows up for the first time as a thousand dollars
now let's imagine on april 26th we paid maggie again for 1
500 more of inventory that we plan on selling on amazon so we do the same thing new
expense and that was april uh 26th so we change this to april 26th maggie the merchant uh
just click no just in case in other words they would put the purchases account but then
they would put the previous money amount which i don't think is helpful so purchases and this time
it was 50 oh excuse me excuse me
just 1500 that we purchased on april 26 save and close
so it says that during the month we purchased 2 500 worth of merchandise that we paid 2500 for
that we plan on selling now before we move on to step three let's do this reports standard
and let's put the good profit and loss up there this one profit and loss choose all dates and run
report now you can see that the purchases is part of the income section this is what the customers
gave us and this is what we paid for so the gross profit that's showing now is not accurate
it only takes into consideration the purchases it doesn't yet take into consideration the difference
between the beginning and ending inventory we need to do that in order to really find out
our cost of goods sold and our gross profit but in the meantime let's click save customization
and click save because it's better to have that one now when we click reports and custom
this profit and loss i think is a little better for a yes so again the cost of goods
sold section is not correct and complete until we do our final inventory adjustment
and now let's finally calculate the gross profit and net income from april by doing three journal
entry adjustments we will assume that no other deposits from amazon happened in april just
to make things easy and clear even though we know we would probably have one more statement
to put in so we will make three journal entries and the dates of those journal entries must be
dated the last day of the month first we will move beginning inventory to cost of goods sold
so if we look at the trial balance we can see in this example beginning inventory is 4 000 on the
debit side so we will make a credit to move it out of inventory because it's no longer the amount in
in inventory at the end of april so we remove all of it by making a credit and the balancing debit
goes to the cost of goods sold account new journal entry you must put the date the last day of the
month that you're measuring the income from the account is inventory and we are making a credit
of whatever the beginning balance is to wipe it out because the beginning balance is no
longer correct and the balancing debit goes into cost of goods sold
then click save and new now on the same date we have to move the balance of purchases to
cost of goods sold in the exact same way if we look at the trial balance now purchases
is 2500 and it's on the debit side so we have to wipe it out and make it zero
so that it can start fresh measuring the purchases for only may so we have to credit purchases to
wipe out the debit balance we click new journal entry quickbooks remembers april 30th purchases
and we will make a credit to wipe it out
purchases must start with zero at the beginning of the month so that when you look at purchases
you know how much was purchased during one specific month and the balancing debit goes to
cost of goods sold and save and new now in order to do the third one you
would have to physically count the ending inventory at the end of april
let's imagine you physically count your inventory as of april 30 and determine
that you have you paid three thousand dollars for the merchandise that is sitting there with you
at exactly on april 30. well inventory right now after the first adjustment has a zero
balance because we wiped it out so we have to put this 3000 into inventory because that's how
much we have at the end so we're going to debit inventory and credit cost of goods sold april 30
inventory is debit
for what we physically have and the balance in credit is cost of goods sold
now when we click save and close we can come back to the profit and loss and you can see
the real cost of goods sold was three thousand five hundred dollars so thirteen thousand six
hundred fifty nine twenty two is what customers gave us for merchandise that we paid thirty
five hundred dollars for and those three journal entries helped us find out that we actually paid
thirty five hundred dollars for the merchandise they gave us thirteen six fifty nine for
that means our real gross profit is ten thousand one fifty nine and when we subtract out all the
other expenses our net income at the end of the month is two hundred 5215 dollars and fifty two
cents