Inventory Valuation Detail - Why Item Cost Column Zero ??

Since no one answered this post... I'm doing it myself since I have dug out what I think the answer is...

Here is the answer to this question for anyone else who may need it in the future. The answer cost me $99.95 to Quickbooks for their Month-To-Month Service Plan plus an hour on hold. Then it took them one minute to give me the answer.

The Problem:

We buy inventory from time to time. We may buy part number 0001 one month for $1.00 each and part number 0001 the next month for $1.05 each.

We like to know how many of any part we have in inventory and what we paid for them... example... we may have 500 of PN 0001 that we paid $1.00 each for and 700 of PN 0001 that we paid $1.05 each for.

When setting up our inventory we initilized inventory when we established the part number...

If you do this, the "Cost" column of the "Inventory Valuation Detail" will not show the cost of that invetory... why? Who knows... but here is what to do about it...

The Answer:

- As you create your Inventory Part Numbers (Items in Quick Books) don't establish a starting inventory... leave it zero... (If you do, then the cost of that inventory will not show up in the cost column of the Inventory Valuation Detail Report... leaving you clueless about the Item cost each later on when you have added more inventory at a different cost...)

- Enter your Opening or Initial Inventory by using Vendor | Enter Bills

- To get this Bill marked paid you will have to use QB to "Pay the Bill" which will mess up your Checking Account... unless you are actually paying the vendor... most likely your initial inventory is already paid for... so...

- If the Inventory is already paid for then you will need to use a Journal Entry to adust it out of Accounts Payable account...

- To do this... (I think :) ... Click Company | Make Journal Entries ... For the Account select Accounts Payable ... For Debit enter the amount in dollars of the initial inventory for the item ... For the Memo enter your Part Number and "Opening Inventory Adjustment" ... For the Name select the name of the vendor for which you made the Bill for the initial inventory ... On the second line for Account select Opening Bal Equity (an Equity Account) ... For Credit enter the amount in dollars of the initial inventory ... For the Memo enter your Part Number & "Opening Inventory Adjustment" ... For the Name select the Name fo the Vendor for which you made the Bill for the initial inventory

Now to wipe out the Bill you created for all of this lookup "Apply Credit" in Help and then click "Applying Credits to a Bill Payment" and follow the directions... this part is easy... Click Vendors | Pay Bills then click the Bill you want to apply the Credit to... then at the bottom of the screen... you should see your available Credit... Click Set Credits and then apply the credit.

The Disclaimer:

I have tried this in a Test Company... and I suggest you do so as well... and if any accountants read this your feedback is welcome... (IANAA)

And, if anyone knows a better way to get your Opening or Initial Inventory into stock when starting Quick Books... and have the Cost information for that inventory show up in your Inventory Valuation Detail Report... please jump in and tell us... or correct me if I am wrong.

Hope all this helps somebody...

Will

I admit I've never been sure what the "Cost" field (and column in reports) was for, but I don't understand why you found it necessary to go through such a complicated procedure to initialize your inventory.

When I create a new Item and wish to "initialize" values, I enter the initial cost in the "Cost" field and quantity in the "On Hand" field. QB calculates the Total Value. The Inventory Valuation Detail report then shows the Qty on hand, the unit (average) cost, and total cost. Seems pretty simple. Of course QB also posts a corresponding credit entry to Opening Balance Equity which must be reallocated to an appropriate account. I have just reconfirmed this in QB Pro 2005 (Windows) Canadian, but as far as I can remember it has worked this way in previous versions. Maybe it's different in other countries?

QB cannot give you the rest of what you wish - the cost of each unit purchased. QB uses only the average cost method of valuing inventory.

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In QB Basic... I entered a new "Item" just as you described... enteing On Hand and Cost Each... But when I run the Inventory Valuation Detail no data appears in the Cost column... only the average in the Ave Cost field.

If I enter the inventory by "buying it" using a Bill.. the unit cost data shows up in the Inventory Valuation Detail Report... And, if you buy more of the same stuff later at a different price... QB Basic will show you each, including the individual cost via the Inventory Valuation Detail Report... at least that is the way my copy is working... and that is what QB Support told me to do in order to see the cost of different "buys" of the same item.

Try my method in a test company and you will see what each 'buy' cost you for the same item in the cost column.... so, you may choose to sell those items that you acquired at the lower cost at a lower discount... or not... but at least you know what your real margin is.

or am I minunderstanding you? I sure would like to find a more simple way to manage this.

thanks - Will

Maybe it's a mutual misunderstanding. Thanks, I see what you mean about the unit cost of each purchase. I haven't paid much attention to that report previously.

You are correct, the obvious method of initializing inventory as I described is recorded as an Inventory adjustment, not a purchase, and is not reflected as a cost although it is correctly included in average cost.

One way to simplify YOUR procedures is to record the initial quantities by "Write Check" rather than bill and bill payment and/or journal entries. You need not specify a vendor, so you can avoid all the Accounts Payable transactions. And you can keep it out of your Bank account by creating a "Transfer/Clearing/Adjustment" Bank account.

But my point, which you may have missed, is that QB does not track the unit cost of the items that are on hand - it tracks only the average cost. The purchase costs reported in the Inventory Valuation Detail report are for the purchases during the period covered by the report - whether any of those purchases remain or not; purchases outside the report period are not included, even if those items are still on hand.

You refer to "real" cost and margin as though there were only one correct way to account for inventory and as though the average cost is NOT the "real" cost. It appears that you may be trying to use the FIFO method of inventory valuation. FIFO and average are both acceptable methods provided that either one is applied consistently and they will produce identical results over the complete cycle of an inventory item (0 beginning qty to 0 ending qty). However results will vary from period to period during times of trending cost changes when quantities are on hand at the ends of periods.

QB uses only the average cost method. If you really want to use FIFO or an alternative method you must either use other software or do some extra calculating. If you just want more detailed info about purchases, as you've described, maybe the Inventory Valuation Detail report will suffice.

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Dear !-!, (How do you pronounce that ? :)

Thanks for the additional information.

IANAA and am just learning how to use QB with inventory so you are probably way ahead of me.

I will check out the Write Check method you mentioned... even though the Journal is your friend I have found :)

I still have a lot to learn... and so little time.

Best,

Will

You're welcome, Will.

The friendly General Journal is like a hammer - you CAN do almost anything with it, but for most jobs there is another tool that is more efficient and/or safer.

I think !-! is a foreign language, but Mom never talks about Dad.

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