do you have merchandise that you buy and sell but you do not need to track the quantity of
in that case you should use non-inventory parts
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
and don't forget to subscribe to get updates on new videos that come out all the time
non-inventory parts are items that you both purchase and sell just like regular inventory
their items that you do not need to track the quantity of you can track the purchase cost in
an expense type of account when you buy the items and you can track the sales income in an income
type of account when you sell them when you set them up on the list of products and services you
must choose the expense account for the purchase costs and the income account for the sales price
so some examples of non-inventory parts would be contractors who use job supplies even if they buy
them and mark them up they don't really count the supplies and keep an inventory like the bricks
they would use to repair a wall or the wooden beams that they use to build a wall and so on
what about a painter a painter would not keep track of how many cans of paint
they have and how many cans they specifically sold they would simply buy it and then use it and then
charge their customer but they would not keep in their quickbooks records the quantity purchased
sold and that which remains in our example we will use fruit crates that hold the fruit that is sold
to a customer because sometimes when companies sell they give a little markup for the container
that they sell it in but they don't really keep track of how many they buy and how many they sell
of that container in this case crates so non-inventory parts are also called two-sided
items and they're called two-sided items because they have a purchase cost and a sales price that
you have to set up when you set up the item the purchase cost is what will automatically appear
when you write a check to buy the items when you record an expense type of transaction to
buy the items or you enter a vendor's bill when you buy the non-inventory part the sales price
will automatically show up on the invoice that you record when you sell the item or the sales
receipt when you sell the item will have the sales price if the customer pays immediately
now our example of a non-inventory part will be fruit crates the containers that we actually give
when we sell the fruit so we have to buy them and we have to charge a little markup to our customers
for the crates but we don't actually count them and keep track of the quantity so the fruit crates
purchase cost when we write a check and we buy them will go into an expense type of account
but when we sell the fruit crates the income will go into an income of type of account like sales
so let's add those two accounts to the chart of accounts as part of the setup for buying
and selling the non-inventory part go down to accounting and click chart of accounts
now this is the first time in this new account that we're looking at the chart
of accounts so you get this little picture and you click see your chart of accounts
notice quickbooks online already comes with a set of accounts in the chart of accounts and
it is assumed that these are common accounts that we would use with any company and now we will add
the specific accounts that we need so in the top right we click new now the account type is expense
and the detail type really doesn't matter so let's just choose uh let's just choose
other business expense now we know the name of it is fruit crate purchases cap locks
and then we can click save and close but we really should click save and new
because the next account will be an income type of account
and the category for that could either be sales of product or service fee it doesn't really matter
but we'll choose sales of product and we'll call it fruit crate sales
and now we have an account to hold the income and the account to hold the purchase
cost when we buy let's click save and new because we also need accounts receivable accounts payable
and cash in order to pay to or from any of the things that we buy and sell in the course
so let's leave the name account receivable and detail type account receivable and click save
and new we should do the same thing for accounts payable and leave the detail type account payable
and click save a new we also should add a bank type of account and maybe checking is the most
common for our operating account when we buy and sell and we'll give it the name
because ultimately the cash will come in for selling and out for buying even if it goes to
receivables and payables first now we can click save and close and you can look carefully at your
chart of accounts and you can see cash account receivable accounts payable you go down to the
income section you can see you have an income account for fruit crate sales and go
to the expense section and you can see you have fruit crate purchases right here as an expense
now let's put this item on the items list of products and services in quickbooks online
we will put five dollars each for the purchase cost and we will put twenty dollars each
for the sales price so to add something to the list of products and services we go to the top
right and we click the cog wheel then we go across to lists and click products and services
now quickbooks already comes with one uh product or really two services
but we won't use the ones that quickbooks online comes with we'll make our own and we'll click new
and this is a non-inventory part and the name of it is fruit crates
i like to put capital now the income account associated with fruit crates is up here fruit
crate sales the one we put on the list a moment ago now the sales price is twenty dollars each
now in order to make this a two-sided item we have to click this box i purchased this product
or service from a vendor now when we scroll down you can see that you have the opportunity
to put the expense account in this case fruit crate purchases the one we just made and what
we normally buy each one for okay you don't need preferred vendor you can leave that blank
now we click save and close and we have our fruit crates on the list of products and services
so we can record the purchase and we can record the sale now here's the example purchase
let's imagine on january 1 of 2020 we purchased a hundred crates from staples with check number one
now before we do that let's click reports and go to the trial balance
you can see right now we have everything zero in the trial balance because we have not yet recorded
any transactions in this new account and now we will do the example purchase
let's imagine on january 1 of 2020 we purchased a hundred crates from staples with check number one
now we know that we're purchasing a hundred and we remember the purchase cost is five dollars each
so in america a hundred times five equals five hundred and that should be the amount of
check number one but then the question is what will show up on the trial balance at the moment we
record this check well fruit crate purchases which was the expense account that keeps track of the
total that we paid when we bought the fruit crates that will show up on the trial balance for the 500
and at the same moment cash and bank will show a negative 500
because if our trial balance is starting with zero for everything it means quickbooks online
thinks we have zero dollars in cash and chase bank so if we write a five hundred dollar
check it will show up as negative and i put a negative number but i really did not have to
because people who know a little bit about accounting know that if cash the balance of
cash is on the credit side on the right side it's implied that it's negative but anyway
it will look very similar to this after we record our first check purchasing the non-inventory part
from the top left click new and go over to vendors and click check now the payee is the vendor
staples the date is january 1 of 2020. now you have to look carefully at the bottom section
of the check you can close out the category details and click the triangle for item details
and then click under the word product and service to get the items list right now we only have one
item on the items list fruit crates and notice because this is a check quickbooks put the
rate at five dollars each because that's the rate that we purchase the crates at
and we set that up on the items list the quantity is 100 and quickbooks will calculate the quantity
times the rate to tell you the amount of the check so cash will become negative for five hundred
dollars and we will have five hundred dollars in the expense for purchasing the fruit crates click
save and close and if we go click to reports tr trial balance you can see
that the numbers are exactly as what we expected this expense fruit crate purchases showed up as
five hundred dollars and cash in bank is showing a negative 500 because it is on the credit side
but don't worry it won't be too negative for long because now i will show you the example sale
let's imagine on january 2nd of 2020 we sold 10 crates to allen who deposited the money from the
sale directly into our bank account now we know that we're selling 10 and we know we sell them
for twenty dollars each so in america ten times twenty equals two hundred so if that's the amount
of the sale it means the income account fruit crate sales will show up for the first time as
200 and cash and bank will be 200 less negative and will only owe the bank 300 because alan was
kind enough to deposit 200 into our account let's take a look at how to record it since we got paid
immediately we will make a sales receipt in the top left click new and in the column of customers
click sale receipt now the date is january 2nd the customer is alan by the way your sale receipt will
say number one i was just playing around you could fix it you do not have to agree with the
default number that quickbooks gives you you can type in your own on the right here
but i'm just gonna fix it okay so we have sale receipt number one zero zero one the customer
is alan and the date is january second now we will choose which product or service when we
click this arrow this is our items list and this is the item we set up and we click fruit crates
and the quantity that we're selling is 10. so quickbooks remembers when we set up the item list
that the rate for each one the sales rate was twenty dollars each and that's why
alan deposited this money directly into our cash and chase bank for this sale receipt now when we
click save and close the numbers are exactly as what we expected fruit crate sales showed up for
the first time as 300 and because alan put 200 in our bank the balance of the bank is less negative
it's still on the credit side which means it's a negative bank balance but it's two hundred
less negative now the most important report to look at is right here reports profit and loss
and you can see we have two hundred dollars in income from the sales and we have five hundred
dollars for the expense that we paid to buy them so we currently have a loss of three hundred
and that brings us to our next major point the profit and loss report will not show the real
profit from buying and selling non-inventory parts that's because the expense account in this case
crate purchases includes all the crates that we purchased including the ones that we still have
this is because non-inventory parts do not consider quantity and that's why we really need
to activate inventory so that only the quantity sold will be deducted to find the profit
you see right now we have the wrong profit we have minus three hundred and that's wrong but we know
that the correct profit is positive a hundred and fifty wait a minute why is the correct profit a
positive hundred and fifty because we know we got two hundred dollars for selling ten of them but
we also know that we paid fifty dollars for each of the ten well for for the ten crates that went
out we paid fifty and we got two hundred so that's how we know the real profit is a hundred and fifty
that means there's literally a four hundred and fifty dollar difference
between the wrong profit and the correct profit how do you account for that well if you've been
following the story you know that we still have 90 crates with us that we have not yet sold
the computer doesn't know that because we did not activate inventory and count the quantity
so if you consider the 90 that we still have times the five dollars that we paid for each of those
that means we still have four hundred and fifty dollars uh a value that the computer doesn't
know that we still have and that explains why there's a four hundred and fifty dollar difference
between what the computer says we have as profit and what we really have as profit so
that's why you must activate inventory and consider quantity now stick around
because the video that follows this one we will show you how to activate inventory
you