Inventory Parts in QuickBooks are physical items that are sold by a business to its customers. They can be items that are sold as is or become part of an assembly of items that are sold as a finished product. QuickBooks allows you to track the cost of each item and how much you resell it for. It will also associate each item with the correct Cost of Goods Sold account when you record your purchase of the item and associate it with the correct Income Account when it is sold. Setting up each of these kinds of items in QuickBooks is how you build your inventory list in the software.
It is important to know what items are inventory and which ones are not, but only used by your company in the course of business without being resold. For example, a manufacturing business may purchase a number of parts that are assembled to create a finished product. Each of those parts end up in the finished product and are therefore considered Inventory Parts. The same business may purchase chemicals or other products that are consumed in the assembly process and do not end up as part of the finished product. These parts should be classified as Non-inventory Parts in the Item List.
The Item List
Your inventory is kept in QuickBooks in a list called the ‘Item List’. You can navigate to it from the ‘Lists’ menu on the menu bar. The Item List is a combination of a number of item types. Each of the items in this list is used in purchase orders, bills, sales receipts, invoices and more in the software. On this page we will only be covering the ‘Inventory Part’. Let’s look at how you can add your inventory items to the list.
Create a New Inventory Part
From the bottom of the ‘Item List’ window Choose the ‘Item’ button and select ‘New’. This will open the ‘New Item’ window. When it first opens you will notice that the ‘Type’ drop-down menu is already open. This is a nice feature as it allows you to select the type of item right away. Since you are setting up an inventory item, we will choose ‘Inventory Part’. And the first thing you do is give it a name.
For the ‘Item Name/Number’ you could use the item number and description assigned to the item by the vendor you purchased it from or give it your own. Either way be sure it is something that you can work with easily as this is what you will see in the ‘Item’ drop-down menu when entering bills or creating sales documents. The next box gives you the option of making your current Inventory Part a ‘Subitem’. More on this later. A ‘Manufacturer’s Part Number’ is not necessary but it is convenient if it is something you want to enter.
The next part is divided into two sections. The one on the left is for ‘Purchase Information’. This is information related to your business’ original purchase of the inventory part. The ‘Description on Purchase Transactions’ is your internal description of the item that you will see on Bills and Purchase Orders you enter in QuickBooks. The ‘Cost’ box is where you will enter the amount you pay for the item. Next, select the ‘Cost of Goods Sold‘ account you want the item connected to and then the name of the Vendor you normally purchase this item from. In the future, when you receive a bill for this item from your vendor, you will only need to select the item from the ‘Items’ tab and the description and cost of the item will be automatically filled in for you.
The section on the right is for ‘Sales Information’. The description you enter here is what your customers will see when you give them a Sales Receipt or Invoice. You will that the description entered from the ‘Description on Purchase Transactions’ was automatically copied here, so be sure to change it if you want your customers to see a different description. Next, enter the amount you will charge your customers for this item. If your prices vary for each customer that is okay, this amount can be changed on invoice and sales receipts. This is just here to help make data entry easier in the future. Next assign the correct tax code to the item that you want to appear on invoices and sales receipts. Then you will choose the correct income account from the drop-down menu to be associated with for sales of this item.
In this section you first choose the correct Asset Account for this item. The ‘Reorder Point’ can be left blank but is a nice feature if you need to be reminded to order more parts when you get below a certain quantity on hand. Leave the On Hand section with the pre-filled value of zero unless you are entering an item for which you already have a quantity on hand that has already been received and paid for. This quantity will change whenever you enter a bill from your vendor with this item on it. The same applies to the ‘Total Value’ field. Only enter an amount if you already have items on hand.
Working with Subitems
Coming back to the subject of Subitems, if you order parts from more than one vendor, you might want to make your inventory parts subitems of the particular vendor they came from. This is not the only purpose for subitems but it can be a helpful way to manage your list and find things in it. In order to do this, you will need to set up that vendor as an Inventory Part in your Item List. Since this item isn’t actually a real inventory part, it is only necessary to give it and ‘Item Name/Number’ and enter a ‘COGS Account’ and ‘Income Account’. Of course items can be made subitems of other real items as well.
Working with inventory in bookkeeping and accounting is beyond the scope of this page, but it is a good idea to have a basic working knowledge of the subject before working with Inventory Parts in QuickBooks, otherwise you could be confused and make mistakes in how you are working with it. One thing to keep in mind is that for some businesses the Item List can become quite long. Some businesses may never sell the same Inventory Item twice. Because of this you might want to put some serious planning into it first so that it won’t become and ordeal in the future to organize and maintain. Remember, Items can be hidden by right-clicking on them and selecting ‘Make Item Inactive’, but once any item on the list is used in a transaction it cannot be deleted.
For businesses that sell merchandise on a consignment basis you might find the following pages at QuickBooks support of particular help to you: