Detailed Instructions for Managing Inventory in QuickBooks
Hector Garcia, CPA, breaks down the very detailed inventory in QuickBooks.
Hector Garcia: Hello everyone and welcome to QB Power Hour In-Depth QuickBooks Inventory, Part 1. I'm your host, Hector Garcia. Michelle Long could not be with us today. She's a little bit under the weather so this is going to be an all-Hector show today. To talk about the agenda real quick, we'll just introduce the hosts and the guests real quick. We'll talk about the CPE process, discuss what QB Power Hour is all about. We'll talk about some announcements and updates and then we'll get right into the topics.
The topics for today are going to be inventory in QuickBooks Desktop versus QuickBooks Online so I'll talk about the role of a inventory consultant and how they need to know and understand what features are there. We're going to talk about some inventory troubleshooting. We'll talk about some of the functions in QuickBooks Desktop for inventory troubleshooting and then we're going to talk about calculating landed cost.
Landed cost is a pretty involved process so that may take 10, 15 minutes by itself. But knowing and understanding Landed cost opens up a lot of windows into how QuickBooks functions. Then towards the very end of the webinar, we're going to have a guest speaker. We're going to have a demonstration for SOS inventory. We're only going to have them for about 10 minutes and I wish it would be a lot longer than that. We're going to get a quick glance into what SOS Inventory is all about, the third party app for QuickBooks Online.
About Michelle, she's the owner of Long for Success and she does QuickBooks consulting and QuickBooks training for a living. Like I said, she couldn't be here today. She's a published author. She runs the LinkedIn group which has over 130,000 members and she's an international speaker for Intuit. Michelle, I hope you feel better.
About myself, I'm a Pro Adviser, QuickBooks consultant, CPA. I live and work in Miami, Florida. I have my own classroom. There's my website. I basically teach QuickBooks on Excel almost exclusively for a living secondary to my standard QuickBooks consulting practice.
Okay. About QB Power Hour. It's every two weeks at 12 p.m. Eastern. This one just started obviously. The next one is going to be on the 23rd, so two weeks from now. Typically, we do 50% QuickBooks Desktop and 50% QuickBooks Online. In this particular case, it's going to be about 90-10, 90 desktop and 90 online. I'll discuss why I don't spend that much time doing inventory in QuickBooks Online just because of particular feature sets.
Once in a while, we have special guests which are our third party apps. In this case, we're going to have SOS do a demonstration of their software. Make sure that you go to QBPowerHour.com and leave feedback in terms of what topics you want and go ahead and also join our Facebook group so we can continue the discussion.
Sponsors and guests. The main sponsors of the show is pretty much Michelle and I and our businesses. We spend our own time and our own resources to put these webinars together. We are not associated with Intuit although we talk about QuickBooks pretty much 24/7. Every once in a while, Intuit may come in as a guest speaker and cover some of the announcements but they do not sponsor us. They do not pay us or anything like that.
Every once in a while, we'll have a third party developer like SOS Inventory which helps sponsor the show and they showcase their great product. We only use vetted sponsors so it's either vendors that we use the application ourselves or that we have clients that use it and they're proven to be really good applications and they're relevant to the topic so that will be the guest speaker today.
The CPE process is quite simple. You need to attend live. You must answer the CPE question correctly. So we're going to give you a hint or a keyword somewhere in the middle of the webinar and then towards the end, usually within the last 10 minutes, we're going to pop up the question and you must answer it. The only way we can issue a CPE certificate is if you were there to know what the keyword is and you were there to answer the correct keyword answer. Typically, it takes us about two to three weeks to mail out the certificates. I recently mailed out the certificates for the very last ones so if you didn't get one or something, contact me at QBPowerHour@gmail.com and we'll get that set up.
Upcoming events. Michelle and I are actually we got paired together by Intuit to do the QuickBooks Online Certification Prep Tour and we're only going to be in two cities. We're going to be in Fort Lauderdale, my hometown, on the 21st of July and then we're going to be the next day in Tampa on the 22nd of July and then there's the direct link. If you want to certify QuickBooks Online, go ahead and register. It's going to be a live one-day event to prepare you for QuickBooks Online.
In November 2nd to the 4th, there's going to be the great QuickBooks conference, QuickBooks Connect, in San Jose, California. If you went last year, I know pretty much for a fact that you're going to go this year. If you didn't, strongly consider going because it's an amazing show. Sleeter Conference is going to be a couple weeks later in Las Vegas and me and Michelle are both going to be there actually. We're going to do the first QB Power Hour Live so we're actually going to deconstruct the webinar process in front of a live audience and we'll talk about whatever topic is relevant then, but you get to see how we run webinars behind the scenes and we're going to do that live in the SleeterCon Conference so I strongly recommend that you attend.
If you're considering attending, check out the YouTube recording of the last one. We talked about SleeterCon a little bit and Doug also gave a coupon code. The last great event is going to be actually next year. It's going to be in Bahamas, Scaling New Heights, so check that out. There's the link. In the handout section of your GoToWebinar console, there should be a PDF file and I'm testing handouts, before we used to do a link, so you can download this PDF presentation. Okay? If you have issue getting the handout, don't worry. I'll email that to you at the end of the day or maybe tomorrow I'll email you the handout as well because I know a lot of people want the handout.
Okay. Let's talk becoming an inventory consultant or let's call it best practices of an inventory consultant. I do tons of inventory consulting because I'm in the part of the world where tons of stuff gets imported and exported in Miami so there's a lot of inventory work and I have a lot of inventory clients. Funny enough, inventory has been one of the most requested topics for QB Power Hour and I just kind of been avoiding it because inventory is such a involved process that I had to really think about how I'm going to put some inventory webinars together.
So for sure, this will not be the only webinar on inventory. There'll probably two or three depending on how popular it is. First golden rule of becoming an inventory consultant is wear jeans. I switched from slacks to jeans a couple of years ago when I started getting into inventory because in order to get your clients to do the inventory, you're going to have to get down in the warehouse and count stuff, right? That's one of the reason.
Well, I did gain weight so that's one of the reasons why I also switched from pants to jeans but that's a whole 'nother issue. If you're going to do inventory consulting, you're going to have to get down there and count and pull boxes and throw away stuff because it takes a lot of discipline to maintain inventory and if the consultant is doing it in the warehouse, trust me, the employees of the client will also do that.
Also, learn to use Excel very well. In inventory consulting, one of the most common issues, one of the most common things about inventory consulting ... I'm sorry. I think the screen got off for a second so there's my slide there. In inventory consulting, one of the most common things is we get some sort of list from vendors with a price list or an item list or a manufacturer's code list or something like that.
You have to make sure that you know Excel enough to be able to filter it and concatenate it and clean it up because your clients are almost always going to have you involved doing price updating or item uploading or things like that. So knowing Excel very well is definitely golden rule of inventory consulting. We've had at least two webinars or three webinars on QB Power Hour, check them out in YouTube, where we talked about Excel techniques and dealing with inventory items and things like that.
The other one is don't be afraid to diagram the workflow. Think about you may have to draw out boxes and lines. I have it bold there because I'm going to show you an example that I found on the internet that I think is excellent. You diagram the workflow so the client can understand everything that's going on in the process and you can tie a particular event in the business with a particular task in QuickBooks. I'll show you an example of that.
Another golden rule is you got to know the limitations of your system and you have to set them up upfront. Make sure that you always write down everything the client and their employees ever mentioned they wanted to do with inventory and write down a list of things that QuickBooks do not do and keep track, have that hang somewhere so they know, because the problem is when people think it can do something and they don't know it has a limitation, that's typically when they get into trouble.
Know what every version of QuickBooks does. I'm going to spend maybe at least about five to 10 minutes talking about every single version of QuickBooks going from Online, Pro, Premier, Enterprise, Enterprise Advanced and tell you what you get as you unlock the next version up, what you get more related to inventory. It's one of the reasons why I pretty much only deal with QuickBooks Desktop with inventory clients unless I have a third party app of some sort.
Then I want to talk to you about language a little bit. I know English is my second language so I'm really not the best qualified to tell you about how to use your words, but in my experience, there are two words that I have to remove from my vocabulary if I want to have a successful inventory consultation. One is the word complicated. I heard so many pro advisers say, "Well, inventory is complicated" and they start the conversation with a client like that. It has all sorts of negative connotations.
Sometimes rightfully so, you can say inventory is complicated and the client can misinterpret that that maybe you don't know it, which is not the case, right? Pro advisers should know it and QuickBooks consultants should know it. What I'm saying is if you start by saying it's complicated, that is definitely going to get that word out. What I say is I say the word involved because the word involved evokes a lot of other feelings. Involved means you got to spend time. That means you have to pay for a consultant to be there, spend time. It means you have to learn. It means you have patience, right?
The other one is time-consuming. Make sure you do not say the word time-consuming in front of a client or in front of an employee because they will use that as a weapon to not do the right thing. Instead, use the word discipline and patience. So when a client says, "Hector, help me implement inventory in my business," what I say is, "Okay. Listen, let's plan for this because it's going to be very involved and we have to make sure that everybody that's going to be involved with this has the discipline and the patience to follow through with tons of attention to detail." I find that when I use those words it has a much stronger impact on setting up what I'm trying to prove later on. Okay?
Let me go to the next slide here and let me talk about diagramming the workflow. I actually found this ... I googled diagram workflow QuickBooks because I didn't want to scan one of my chicken scratch ones but I think this is pretty cool. What you do is basically you draw out every time there's a person involved in a function. Like for example, as you see in the graph, there's a person involved in purchasing and then there's a person involved in receiving and then there's a person involved in production, manufacturing, sales, whatever.
You draw out the stick figures of all the people that are going to be doing something. Then in-between the people, you're going to put the QuickBooks transactions. So between purchasing and the vendor, there's going to be a purchase order. Between the warehouse manager and the purchaser, there's going to be an inventory cycle count where they're going to decide whether to do some replenishment. Between the customer and the salesperson, there's going to be a sales order or something like that.
By diagramming the workflow, it really makes it easy to have conversations about where a human being needs to be involved in a process, where the computer needs to semi-automate process, where you need to build controls and then you could draw little circles around controls and controls are sort of that second person verifying that it's correct or verifying that the packing slip matches the bill, et cetera, et cetera. That's really what I like about diagramming the workflow. This is just an example.
The next slide here, let me talk about QuickBooks Online. QuickBooks Online Plus does inventory. Yes. Okay? It can do estimates, it can do invoices and it can do sales receipts. But the biggest problem with QuickBooks Online is no sales order. That, to me, is the biggest, biggest issue because negative inventory happens because a client creates an invoice before delivering the product, and so often, you make a sale but you don't have the product in stock and the sales order is the only document that allows you to record a sale without pushing the inventory into negative, right?
The fact that QBO doesn't have that, to me, it's a huge limitation and I need to be very upfront with that if my client is going to insist on working on QuickBooks Online. Now, by the way, you can work with QuickBooks Online and add a third party app like SOS Inventory. We'll have a demo on that and we're going to come full circle with that. But by itself, it's just too weak to handle inventory just because of the lack of sales orders.
The other major problem with QuickBooks Online is yes, it can do purchase orders, yes it can do bills, yes it can do checks, but you can't do item receipt as a separate workflow component so the person that enters the bills basically also receive the inventory, and no partial POs which to me is it's a big issue. So you order 10 or something and you only get eight. In QuickBooks Online, you don't have a way of telling QuickBooks but you're still waiting for two. Now, the real neat thing about it is native FIFO and FIFO, to me, it's a much better valuation method than average cost. I'm going to do an example of average cost and I'll prove to you how easier FIFO can be.
All right. QuickBooks Online and Inventory, in conclusion, it's very basic. You should consider a third party app for any intermediate to advanced functionality. If you go to apps.com and you search for inventory, you're going to see all these apps. I remember probably no less than a year, a year and a half ago when you were looking for an inventory app for QuickBooks Online, the only option was the first one, SOS Inventory. Now, more and more developers are catching up and competing, but SOS Inventory it's like ... Let's call it the original QuickBooks Online third party app for inventory. I'll tell you, if you haven't looked at SOS Inventory in the past year, it's a completely different software and it's extremely robust and hopefully in the five, 10 minutes that we'll have Steve do a demonstration, you will see how crazy good SOS Inventory has gotten over the years and it could be a great solution for clients that want to be in QBO.
Why do I continuously choose and talk about QuickBooks Desktop as the solution for QuickBooks Inventory clients? It's because just by going to QuickBooks Pro compared to QuickBooks Online, these are all the things that you get that are different there. Average cost. Some clients want that by the way. I'm in the fence whether I like average cost or not and I've been using it for so long that I don't mind it anymore. Most people like FIFO. With QuickBooks Pro you get average cost.
Add/edit multiple items is incredible for batch editing and importing items which is crucial when you have a lot of items. With QuickBooks Online, I hate the fact that it takes so long to update pricing and stuff like that. Item groups. If you sell tires, you can sell a package or a kit of four tires or something like that. That's a great thing about groups is it's grouping them together. Subtotaling. Some clients want cars parts grouped and then the boat parts grouped and then the airplane parts grouped or whatever so sometimes the subtotaling really helps organize your invoicing and your estimates and your sales orders. So I think subtotals are so important and QuickBooks Online doesn't have that.
Progress Invoicing. Sometimes a client plans to buy a whole bunch of product but wants you to ship it in pieces and then progress invoicing actually helps with that. Progress invoicing is typically more for construction and projects type of stuff, but for that in particular, it could be useful for inventory. Item receipts as a separate workflow or receiving a bill. That, to me, is huge also. A lot of clients like to receive the items as one transaction and then come back and convert them into bills as a separate transaction. You get that with QuickBooks Pro.
You get partial receiving of purchase orders. You get up to five item level custom fields and hopefully ... I don't know how much time I'll have today ... I'll be able to cover why that's so important. Item profitability and inventory stock status reports, you don't get that in QBO. You get that in QuickBooks Pro. Fixed percentage price levels is very useful for giving somebody 10%, 20% depending on the situation. Recording minimum reorder points is huge and crucial for planning, inventory purchasing and being able to add another item name like the manufacturer's part number on POs to me is really big.
Now, let's talk about moving on to QuickBooks Premier. Honestly, QuickBooks Premier to me is the baseline, right? If you are going to have a client with QuickBooks inventory, you're either going to use some sort of third party app with QBO or you're going to have to be at least in QuickBooks Premier. What do you get with QuickBooks Premier that you don't get with a Pro or QuickBooks Online is you get sales orders which to me are incredibly crucial especially for setting up sales that haven't been delivered yet or shipped yet.
Ability to create a PO from an estimate or a sales order. That's extremely big because you do a sales order and you do an estimate and you want to create vendor PO straight from it. That, to me, is a huge time-saver. The current availability window which is about measuring what's available and including what's out in sales order. Max reorder point which is the other sort of the cousin of minimum reorder which allows you to have an idea of how many you want to have when you actually replenish. Multiple units of measure, a huge and extremely necessary for inventory assemblies and things like that.
You also get item-level price levels which is extremely useful also to have a particular customer that has an entirely different price list. We have inventory assemblies which is for bill of materials and manufacturers. Okay? We have inventory center that is huge, too. I can't cover all these in one webinar but again, if there's enough interest, we'll cover some of these and sales order fulfillment worksheets. This is the reason why I tend to recommend QuickBooks Premier as the baseline for QuickBooks Inventory.
Okay. The next topic here is Inventory Features and QuickBooks Enterprise. Now, when we move beyond Pro and Premier what does Enterprise do? Enterprise gives you 10 custom fields in the item level and not only that, you can also hit a dropdown so you can actually pre-filled dropdown menus on your custom fields which to me is great for any QuickBooks inventory and in any sort of inventory function where the user can type anything they want in the custom field.
Find and search items, so when you have a big item list, is really useful to have a place where you can just search. Automatically purchase. You can actually automatically create a PO based on minimum and maximum reorder points. You have the option of completely separating two separate accounting transactions between item receipt and bill. By the way, in Pro and Premier, in item receipt and a bill, it's actually the same transaction. It's just done in two steps, whereas with enhanced inventory receiving you can completely split it as if it was two completely separate transactions.
Disallow negative quantities. This was added in QuickBooks Enterprise 2015. What a huge feature. I can't believe it took them 25 years to add this. This actually blocks the user for being able to do any negative inventories. This is already having a huge impact in a lot of my clients. Being able to add an item in the inventory center, so you can't really add the item in the sales order or in the estimate but you can have it in the inventory center. So if you got widget A and widget B look exactly the same to both of that widgets, you'll be able to see the picture and see what the difference is.
Updating the sales price based on a predetermined margin or markup. It's also huge. This is when you need to always make, let's say, 25% markup on a product and the vendors change the price and we can have QuickBooks automatically change the list prices. Well, there's an awesome feature for manufacturers called "where used". Basically, when there's a component change where you're replacing a component A with component B in all your manufacturing processes, you can do a one click to do that. And then shortage report on pending assemblies is also added in QuickBooks 2015. That was actually really, really, really good.
The last one I'll talk about is QuickBooks Enterprise Platinum which used to be Advanced Inventory and Advanced Pricing. It gives you even more features. It gives you a FIFO inventory valuation which I mentioned earlier. It's already on QuickBooks Online. It gives you bar code capability for selling and receiving. By the way, it's still very weak. I like to call advanced inventory more like intermediate inventory because the bar codes are extremely thin in my opinion.
Multiple inventory locations. You get multiple bin locations. You get your choice of serial numbers or lot numbers and lot numbers are very useful for expiration dates. We had a long conversation in yesterday’s [nonmeeting 00:23:21] about expiration dates and advanced pricing which is a sophisticated pricing method based on multiple conditions.
Again, this handout is going to be given to you. I think it's extremely important that you know all these features even or print this out and have it with you when you do any inventory consulting because choosing the right product, it's one of single most crucial thing to be able to design any sort of consultation. Anyway, so yeah, the previous bookkeeper is typically one of the culprits, but I think the biggest issue is some people are living in this bliss where they don't even know their inventory is a mess and it's our job to jump in there and explain it to them. Again, get really involved and that sort of thing.
Okay. All right. Let's talk about average cost now. I made a statement earlier that I think FIFO is better than average cost and I'm rectifying myself. FIFO for the most part is easier to understand than average cost. I'm going to show you an example as of why and I think once you see that example, you'll understand why average cost it's not as simple as you think it may be.
Let me put the slide up and then I'm going to do a mind exercise here and I'm going to tell you this particular situation. We purchased a thousand units of whatever for a dollar each on June 1st, and then on July 1st, I bought a thousand units of that same issue for $2 each. Okay? My question is ... I didn't put a polling question on this one, I should have, but just put it on the chat, on the questions box. My question is: If I create an invoice in QuickBooks, what is going to be the average cost reflected in there? What do you think the right answer is?
Oops, there it is. I think I have the results to share. So we bought a thousand units at $1 each, a thousand units at $2 each in two different dates, right? The question is what is going to be the average cost on the next invoice I create? What is the right answer? Just in your chat, put the answer in there. I'll tell you most people are answering, so far they're answering C, 1.5 per unit. The right answer actually is E. Okay? Average cost is actually a hundred percent dependent on the date that I sold it. And then subsequent to that, also D because it's also dependent on the date that I sold it and the quantity that I sold.
Average cost is very much date-driven. I'm going to show you the example and it's going to make tons of sense once you actually see the live example. I'm going to jump into QuickBooks Desktop here. Could somebody on the chat tell me if they can see a bill screen, if you see a QuickBooks Desktop on the bill screen? Okay? It looks like you do. Perfect. Okay. I want to start by receiving some socks. I'm going to basically buy some socks here, so socks and I'll buy a thousand socks at $1 each. This was dated on June 1st. Okay?
That's the first example. A thousand socks for $1 each on June 1st. I'm going to hit save here and I'll go ahead and duplicate this bill and this one is going to be on July 1st and this is going to be the same thousand units for $2 each and I hit save and close. Okay? This go into my inventory valuation report so I'm going to go to Reports, Inventory, Inventory Valuation Summary. What is my average cost? Right now, what is my average cost of my socks? Let me make this a little bit bigger here.
My average cost is $1.50. I'll make the font bigger. Okay? It's $1.50. However, this is my average cost as of July 9th. My average cost on June 30th is $1. Okay? Very much, very much date-driven. Okay. Let's just show you the example in a profit and loss report. I think it's going to make the most sense so let me pull a P&L. By the way, when I do training for my clients especially if I want to demonstrate how cash basis work or how something like this will work, I usually just show a P&L like this of both months. Okay?
Let me make this font bigger. That way, you can see live what’s going on here. Okay? I'm going to go ahead and create an invoice. I'm going to go do Customers, Create Invoice, and I'm going to sell to my one customer here, I'm going to sell them a hundred units of those socks and I'm going to date this July 2nd. I'm going to hit save and close, and my average cost is $1.50. Okay? That was two plus one divided by two, $1.50.
However, if that invoice shows up ... Let me just show you this. If the invoice actually shows up not in July but in June because if you remember, I had bought the other units, the second batch of units for $2 each. I have bought that for $2 and I hit save and close. My average cost is now ... Let me hit refresh here. My average cost is now $1. Okay? So that proves to you that average cost is based on dates.
Now, the next question is and I'll ask you to put an answer here on the chat box is: If I create another invoice for a hundred units, let's say 500 units on ... Let's just [inaudible 00:29:09] that. I'm going to create one more invoice for 900 units in July. What is going to be my new average cost? I'll do a thousand units to make it very easy. Put in your chat box what is the new average cost now. Okay. Somebody is saying $1.50. No. It's actually not because the new average cost is 900 units that are left times $1 plus 2,000 units times $2 so now it's not going to be 1.50. It's probably going to be 1.4 something.
Let me just show you that example. I'm going to go ahead and create an invoice and I'll date this invoice in July now so I have this invoice in July and I'll sell 100 units. Where is my socks? There it is. Okay. I hit save and close. Notice that my new average cost is 1.5 something. So it's no longer 1.5 exactly. It's going to be 1.52 whatever because what it does is it recalculates average cost each time. This is why some people prefer FIFO because with FIFO, I know that those units would be $1 and when I'm done with exhausting those that are $1 then we go over to the ones that are $2. But what confuses the heck out of people is that average cost is being recalculated in real-time.
Okay. Now, let me show you something else that's going to just throw you off here. What if I backdate an invoice? I'm going to keep that invoice for July for a hundred units that the current cost is 1.53. What if I backdate an invoice in June and I sell 900 units. Will my July average cost change and will my financial statements change? Let me show you that. Let me repeat the example and I'll have you put something in the chat. If I create an invoice right now on June date right before I purchased the second set for $2. For all 900 units in June, what is going to be my new average cost in July? Okay? Does anybody have here an answer? Put it here to the chat.
Okay. Some people are saying $1. Some people are saying $2. Let me show you exactly what I mean. I'm going to go to Customers and go to Create Invoice and then I'm going to date this invoice in June and I'm going to sell 900 units. I'm going to sell 900 units and I'm going to select here socks and there's 900 units and I'm going to hit save and close. Notice what happens is when I finished selling all my units that are in June, my average cost in June now reset to $1, so instead of being whatever the other amount was and now my July average cost recalculated to $2. So it almost feels a little bit FIFO.
But this is the thing. QuickBooks is constantly, constantly, constantly recalculating average cost. This is why it is so crucial that when you close the period, you put a closing date password on that thing because if somebody creates a transaction that affects an inventory item, you're going to retroactively go forward and recalculate everything. It's very much date-driven, right? Like somebody commented here, it's not period-driven. It's date-driven. Exactly. So it has nothing to do with the period. It has to do with the dates and if I move transactions around my average cost changes.
I'll give you another example here. I'm going to go ahead and move ... The same example. I'm going to move this invoice from June 30th to July 4th and now we're going to see the average cost is going to be moved around again. Okay? Take a look at that. My average cost moved around again because again it got recalculated. So for the month of June when I had bought inventory and the only inventory I bought was $1, it did it for $1. For the month of July it recalculated.
To make things even more crazy here, I'm going to take that bill that I received. Let me go here to Vendors and I may be going overboard with this, but let me go back and look at the bill $2. There's the bill for $2. I'm going to change the date and put this sometime in May. I'm going to take this bill back sometime in May and we're going to see now what's going to happen is my average cost got recalculated again and everything else got calculated to 1.5. Isn't that interesting?
I found that just extremely entertaining to just ... When I was going through that example myself to just double check that I was presenting the right thing, but it's one thing, it just puzzles me how average cost works. Now, by the way, this makes total logical sense but it will take probably sometime for you practice and to think about in order to really get it up and running. That's average cost.
For now, write down your CPE keyword. Well, this time has flown by. I may not be able to do everything I wanted to do, but if not, we'll have another episode on inventory. Write down the CPE keyword. The CPE keyword is Florida so write that down because towards the end, I'm going to ask you for the CPE question so please write down the CPE keyword. The CPE keyword is Florida. I'm going to leave that up for another maybe a minute and I'm going to go through the questions to see if anybody has a question here.
Somebody says average cost is not stable enough for presenting reports to shareholders when they require accurate financial statement presentations. For the person that said that, average cost will work really well as long as you close your financials and you do a closing date password and disallow somebody. Because that's the whole key is having somebody make changes to a transaction before that date. As long as you put a closing date password, you shouldn't have an issue.
Now, somebody says, "Does FIFO recalculate cost if you backdate a sales invoice?" Okay. Yeah. Yes. QuickBooks will recalculate FIFO as well. This live recalculation of average costs also happens with FIFO. It's a different method but it's done. Let me see. I believe that having used average cost [for the five 00:35:36], 20 years or so, it doesn't make ... Somebody says, "I've used average cost for 25 years and at the end of the day, it doesn't make much material difference" so they're satisfied with average cost. There we go.
How often do you close financials? Somebody is asking me that. At least once a year. Yeah. For sure. At least once a year. Let me see. Somebody says that the title of my name on my webcam says Michelle Long. Yeah. I have to log in as Michelle because Michelle is not available so I'm sorry about that. Okay. Last time for the CPE keyword. Let me see. I don't think I can change my name on the webcam. No. I'm still going to be Michelle Long. Okay. All right.
Let me go to the next slide here. Landed Cost. Oh, man. I don't have that much time to do landed cost or inventory troubleshooting so I have to pick one. Okay. I'm going to pick landed cost real quick but I'm going to refer you to a video that actually goes to the entire detail. I'm going to do really, really quick landed cost. Let me jump into QuickBooks here and let me try to tell you what the issue at hand is and let me just delete these invoices and these bills. That way, we don't have any confusion here.
I'm going to tell you about landed cost in a second and I'm actually going to do a simplified version of landed cost because I have a YouTube video that has the detailed version of landed cost, and of course, because I won't have time to cover all the stuff there, yeah, I'll refer you to that video. Let me go into my bills here. I'm just trying to make sure that I don't have anything here to mess things up. Okay. All right.
There we go. Let's talk about landed cost. Let's say I'm going to buy a thousand socks and let's say and 300 shirts. Okay? This is my bill from my manufacturer and this is actually how much I'm going to pay my vendor or my manufacturer for the product. However, there is a shipping cost. There is a shipping cost component that I have to pay and that's typically seen, it manifests itself as some other bill or some other payment to a shipping company.
There's my inventory receiving of whatever it is. This is my actual amount that I'm paying my vendor and then I'm going to have a separate transaction which would be a check, a wire transfer, whatever for my freight. I'm going to go ahead and pay let's $4,200 in freight and I'll put here expenses and I'll put freight. This is typically what customers do, right? They'll take it to an expense account called freight. Okay? I'm going to hit save and close and then I'm going to show you the profit and loss.
This is the problem that we have. The problem that we have is that because freight was a separate transaction than the inventory receiving, it hits my profit and loss right away. The problem with that is if I sell this product, let's say, in July ... Let me just put a couple of dates here so we can see what the P&L looks by month. The issue is if I actually make a sale in July, my June looks overstated in expenses and my July is going to look understated in expenses when the actual average cost pull in.
Let me show you what I mean by that. I'm going to go to Customers, Create Invoice and I'm going to go ahead and sell a couple of these units here. I'm going to sell a one and one just to illustrate how these works so one shirt and one sock. Okay? I'm going to hit save and close. What happens is my cost of goods sold right now is the actual cost of the unit, so the cost that this unit which in this case, let me show you exactly what that was, the cost of this one unit was 6.27 for the shirt and for the other unit was $2. But this is unfair, right? Because we actually had $4,200 in freight and we need to make sure that that freight ... Let me just move this sale to July. Sorry. I should have moved this to July to make it much more impactful on the profit and loss. So I'm going to move that here.
What ends up happening is it looks like June was a huge loss because I paid all this freight and it looks like July is a profit. By the way, there's still a profit but the profit should be a lot smaller. Right now, my financial statement looks all out of whack because I sent freight cost straight into the expense account. The trick I'm going to show you is the most simple method of doing average cost. What we're going to do is we're going to take this $4,200 here and we're going to distribute them evenly across all these products.
Let me go into this bill here. I'm going to go to enter bill and go back into this bill. Not this one but that one. What I'm going to do is I'm make a quick calculation here. Let me do a calculator and then I'm going to say, okay, so I have $4,200 and I'm going to divide that by the number of units. Okay? So that's $3.23. Based on my calculation, I need to add $3.23 to each of these units so I have to manually come in here and add 3.23 and come in here and add 3.23. There's really no other way of doing this. This is the only way you can do this in QuickBooks.
But then when you come into expenses, you have to make sure that you're hitting back the freight cost. So basically what that 4199 transaction does is it's going to reverse my freight cost. That way, it will make it look like we never really had freight cost and it's going to add the actual allotted or landed cost component into it. Now, the problem with doing it by quantity like this is that we're not considering things like what's the weight of the product or what's the volume of the product or things that are actually affecting my freight cost.
I'm going to put a link to my YouTube video where it actually tell you how to do it with all sorts of components. In a nutshell, this is how you do it and if I had more time, I would do the whole thing on the live webinar but I just don't. What ends up happening now is now if you take a look at this, now my cost of goods sold are shown correctly and now it actually shows that I didn't make any money on the deal. It's interesting. It looked like it was a profitable deal before because when I was looking at my cost, I was not considering my freight cost. This is why inventory consulting is so important because sometimes clients sell stuff on their cost because they didn't calculate landed cost properly.
Now, I'm sure somebody is going to comment, "Well, you know, Hector there's still $1 left on that freight cost when you look ... Yes it's not going to be perfect but you know what? I'd rather be $1 off than $4,200 off. Okay. That's it with average cost. What I'll do is I'll still answer your questions that you'll send me in there. Let me go ahead and switch it over to Steven from SOS Inventory, but real quick, let me just tell you I'm going to go to YouTube and I'm going to search here for Hector Garcia landed cost and just to show what that video is. I spent about 20 minutes in the video. Oop, let me pause that.
This actually goes into detail about how to do it with multiple allocation processes. I actually show about two or three techniques. I'm going to copy and paste this URL here into the chat. There it is so now you guys should have that link. If you like landed cost and this is something that really interests you and you want to explore even further, watch that video. Trust me. It's free so it's great.
Okay. Let me see if Steven from SOS is available and while Steve does his presentation, I'm going to try to answer some of the questions. There's like a thousand questions here on the chat box. Steve, you can take it from now.
Steven Myers: All right. Hector, are you able to see my screen?
Hector Garcia: Yes, we can see it.
Steven Myers: Okay. Great. I'm Steve Myers from SOS Inventory. We do work right along with QuickBooks Online. Just to be able to say that one more time, we only work with QuickBooks Online and what we do is we provide a QuickBooks Enterprise and Advanced Inventory functionality to QuickBooks Online.
I'm just going to go through a couple of different functions that we do provide to QuickBooks Online through the use of SOS Inventory. All right. Taking a look at the home screen, you can see that you get a dashboard which is going to show you real quickly what open purchase orders, sales orders, orders that are ready to ship and different key elements that your clients would be concerned with. I mentioned sales orders. We do have sales orders that you're able to track.
You can see that a sales order is going to show you they're open or closed and it's going to be based on whether the item on the sales order has been shipped and invoiced. When all items have been shipped and invoiced, it's going to close the sales order and you're going to be able to track it pretty easily. Another thing that we're able to do is you can create packing slips right from SOS Inventory so if you want to ship something out, create that packing slip, you're able to do that within the program.
Another feature. You can create your purchase orders within SOS inventory. It is going to synchronize seamlessly with QuickBooks Online. If you create a purchase order in SOS, it will create a purchase order in QuickBooks Online. You can partially receive your purchase order. If you don't receive everything, you can do that item receipt and it's going to end up ... You can list what you have received. If you haven't received everything, it's going to keep your purchase order open.
Mentioning the item receipts, you are able to also do the landed cost. You do it a little bit differently with SOS inventory. You'll just end up putting your other costs, put that freight charge in and it's going to automatically be calculated into the overall cost of the item, sends the appropriate bills over to QuickBooks Online and places the value of the items into your asset account and keeps it all in order.
You see here we have this item. It's serial-controlled. You can track serial numbers, lot numbers with SOS inventory and that information will be passed over to QuickBooks Online as well. You can manage your inventory at multiple locations. Very useful for a lot of your clients when you receive something in, tell which location you're receiving it into. You can transfer amongst your different locations and then when you shift something out, you can say which location you're shipping it from.
You're also able to do quite a few different things. You can do builds. You can do processes for those clients that have manufacturing. You can do work orders. We have different valuation methods. You can use weighted average, FIFO or LIFO which can also value serial-controlled items by specific ID meaning you can track the actual cost of an item. So if you sell the same item but they're all just a little bit different, you customize those products, you can track the actual cost of them.
Then we have a plethora of reports that are built into the program, but for any reports that we don't have within our program, you're able to export all of your data and create your own custom reports. A few other things. Price tiers. You can create custom price tiers so that people get quantity discounts or wholesale pricing. That's just a few of the different features within SOS Inventory. I'd be happy to, if anybody is interested, set up a demo with them if they have clients that have inventory needs.
Hector Garcia: Okay. Steven, can you answer some questions?
Steven Myers: Absolutely.
Hector Garcia: Okay. Somebody is asking is there a multi-currency?
Steven Myers: Yes. We do have multi-currency with QuickBooks Online. They just added multi-currency for the US version of QuickBooks Online so it works seamlessly with that function as well as working with the international version of QuickBooks Online.
Hector Garcia: Okay. Perfect. We have another question about how does the transaction move over to QuickBooks Online? Will there be an invoice in QuickBooks Online with items? Are there inventory items? I think that is a multiple part question there.
Steven Myers: Yes. Absolutely. If you create an item in SOS Inventory, it will create that item in QuickBooks. The same thing with the vendor or customer. When I create a sales order in SOS inventory, it's not going to create anything in QuickBooks Online because they don't have sales orders. However, when I go and ship that sales order, it will create a journal entry to affect your asset and cost of goods sold account and then when you invoice the sale in SOS, it is going to create that invoice in QuickBooks Online.
On the receiving side, if I create a purchase order in SOS Inventory, it will create that purchase order in QuickBooks Online and then when I create the receipt from the purchase order, if I choose none, it won't sync anything but if I choose bill, it will sync over as a bill. You also have the options to choose it as a cash purchase, check purchase or credit card purchase and it's going to sync over to the proper account in QuickBooks Online.
Hector Garcia: Okay. Thank you. There's a lot of questions. I'm going to bombard you with questions. Is there a mobile version of SOS where somebody on the field can do sales orders or something like that?
Steven Myers: Currently, we do not have an application but any device that has a browser can use SOS Inventory. We've used it on an iPhone. iPad is real good. You use can use it right within the browser.
Hector Garcia: Okay. The other question is: How does inventory items in QuickBooks Online work with ... Maybe you want to make a statement about how inventory needs to be turned off in QBO. I think that's [inaudible 00:50:29]
Steven Myers: Yup. Thank you very much, Hector. When you use SOS Inventory with QuickBooks Online, you do not use the inventory module within QuickBooks Online. You can use SOS Inventory with Essentials but if you use it with Plus, you must leave inventory tracking turned off. You'll track your inventory in SOS and through the synchronization of bills, journal entries and invoices, it will keep your accounts in order in QuickBooks Online.
Hector Garcia: Okay. Is there an affiliate or a reseller program for some of us that resell QuickBooks?
Steven Myers: Yes. If you are a QuickBooks Online Pro adviser, we do have a program and it is just sosinventory.com/proadvisor and you'll end up seeing that page and you're able to put in your name, email. We ask in the comments section list where you heard of us and also put in your city and state so that when we end up getting our customers that are asking for a Pro adviser to help them out that we're able to give them your information.
Hector Garcia: Oh, that's really good. Have you talked to any Pro advisers that actually ... Do you have any communication with Pro advisers that focus a lot on QBO and consulting with SOS? Do you have constant communication with any of them? Can you tell me some examples on how they incorporate this into their practice?
Steven Myers: We do. Tim Grant out in California has done many articles on SOS Inventory and he's really our favorite go-to Pro adviser for our customers. When somebody has a problem, they may not really know a lot about QuickBooks Online, but then they're also having a little bit of struggles to set up their inventory, he ends up helping them out.
We have been in business for about six and a half years and we have clients that have been using SOS Inventory for six years that run anywhere from small businesses to large business, bringing things in from overseas, tracking the landed cost, doing different price tiers for quantity buys with their customers and keeping all of their books in order and having that mobile platform to be able to do their business.
Hector Garcia: Okay. Thank you. The last question is: Is there a place to get training on it so I can feel more confident about using it with my clients? Okay.
Steven Myers: Absolutely. Let me mention we do have quite a few YouTube videos. If you just go to YouTube and type in SOS Inventory, you'll end up finding a lot of information. On our website, we have our contact information which you can contact us. We can do a demonstration. We can end up helping your clients get familiar with the different ways of using SOS Inventory, but then also within the program itself, if you click on the question mark, you'll be given a link to frequently asked questions as well as our user's guide.
Hector Garcia: Awesome, Steven. Okay. I got to let you go because I got to put the CPE keyword. Thanks. Somebody is here commenting that they would like to see an entire use case with examples so maybe we will talk about that and see whether or not we can have SOS do an entire presentation or a separate webinar. Let me go ahead and put the CPE keyword, Steven. Thanks a lot. Support@sosinventory.com, check it out. Set up your free trial. Set yourself up as a Pro adviser. Trust me. You won't be disappointed. It is a really, really neat program. This five-minute presentation is not enough. Steven, thank you.
Steven Myers: Thank you very much. Have a great day.
Hector Garcia: Okay. Please answer the CPE keyword if you want your CPE certificate. Again, if you want to log out right after, you're good to go but I do want to cover one last thing. Okay. So CPE keyword is up. I want to leave it for about a minute. Let me see what other questions were there. Somebody is asking, "Does SOS Inventory work with QuickBooks Desktop?" The answer is no. Only QuickBooks Online.
Somebody is asking, "Does it do multiple units of measure?" The answer is yes, it does multiple units of measure. Somebody is asking, "Can you do manufacturing?" I say absolutely you can do manufacturing in SOS Inventory. Somebody says, "Can you track assets that are being leased?" I assume what they mean is can you do rental tracking and the answer is yes, you can do rental tracking. Unfortunately, we didn't have a chance to do that. Rental tracking is actually pretty, pretty neat.
Somebody says, "Does it do bar code scanning?" Yes, it can do bar code scanning. Somebody is asking what bar codes are compatible with SOS Inventory? I don't know. I guess contact support@sosinventory for that. Does SOS ...
Steven Myers: Hector, that is Code 39.
Hector Garcia: I didn't know you're still there. Any scanner that handles Code 39 would be compatible. That's what you're saying. Okay.
Steven Myers: That's correct. You can scan in any bar code but it will produce Code 39.
Hector Garcia: Perfect. Can SOS work with construction work in progress and job costing? I'll ask that person to email support directly because that may be a really loaded question there. Can SOS manage multiple warehouses? The answer is yes. Can SOS manage multiple prices with multiple preferred vendors? Yes. Actually, they did a demonstration for that yesterday for one of my clients. You can have multiple price lists for a vendor.
Can SOS do volume discounting? So if a client buys a hundred units, they get one price, if they buy a thousand units, they get another price. Yes, it can do it. They also did a presentation of that so I saw that firsthand. Is there a limit of how inventory can manage? I'm going to say there's no limit but Steve, if you want to jump in and tell us if there is in fact some sort of limit. Is there a number of item limit?
Steven Myers: No. It is unlimited. However, if you get over 20,000 line items you are going to start seeing a little bit of slowdown of service, but we have people that are using 15, 20,000 items and working strong.
Hector Garcia: Right. There's a lot more questions here I just don't have time to answer so I'm going to send them to you and then the ones that were not answered, Steve, you can answer those privately. Okay. Perfect. Let me close the poll. Thank you very much. For the ones that have left, you're going to miss out the best part. No, I'm just kidding. You're going to miss out much.
I want to talk about inventory troubleshooting. I wish I had time to. If we change this to the QB Double Hour or something like that, maybe we could do this in two hours, but it's just there isn't enough time for the amount of information I want to give you.
Cycle Counts, quick report, quantity availability, disallowed negative quantities and negative inventory report. They're troubleshooting tools that I wanted to show you. Maybe we'll leave them out to the next webinar or so. Okay. Upcoming webinar. In two weeks from now, Michelle and I are going to do ... We're going to talk about why I like QuickBooks Desktop more than QuickBooks Online. By the way, I love both QuickBooks Desktop and QuickBooks Online. It's like if somebody asks me do you like Mexican food or do you like fried chicken and I say yeah, I like both. Then they say, "Which one do you like better?" I say, "Well, can I just like both?" That's how I look at QuickBooks Desktop Online. I like both but they're for different circumstances.
I'm going to talk about where I like QuickBooks Desktop more. Michelle will talk about where she likes QuickBooks Online more and then we'll talk about multiple ways to collaborate. We're going to have two special guests. We're going to have MyQuickCloud and Qbox and they're going to talk about collaboration with QuickBooks Desktop because the ultimate solution for QuickBooks Online for working remotely is that it's already in the cloud.
If you take my side on the next webinar about liking desktop more or having clients that fit best on the desktop product, then you're going to definitely going to like MyQuickCloud and Qbox because they're great solutions for working on QuickBooks Desktop. Okay. Finally, I'll ask you one last question is, Do you want to see a part two about QuickBooks Inventory and how would you like to see it? Do you want to see more QuickBooks only inventory? Would you like to also talk about maybe more SOS or maybe a different provider like Activate or Fishbowl or something like that or no, you really don't care about inventory and don't do anymore inventory episodes?
Okay. Somebody is asking for POS. Oh, man. QuickBooks POS. That's going to be an interesting one but we can think about that. If you want to do POS, I want to make sure I have enough request for that because POS is a pretty small market. Somebody is requesting for more Enterprise and Advanced Inventory. Yup. That's coming. For sure that's coming. A few people are saying yes to POS. Okay. That's good. Maybe I'll think about POS. Great presentation. Challenging topic. Please continue another session. Okay, great. Great comments here. Okay. Cool.
For the most part, it looks like over 80% of people want more inventory-related topics. Okay. That's it. Thank you very much. Thank you for staying over time. You're going to get an email from me with the handout in PDF and a copy of the recording. It will probably take me a day or two to put that together. Please join our Facebook group. I like to focus on Facebook because I'm there all day long in my phone and stuff like that. Join our Facebook group QB Power Hour and let's continue the conversation and tell me comments about what you would like to see and that sort of thing. Have a great day. I hope that I did okay without Michelle. Have a nice weekend. Thank you, Steve.
Steven Myers: Okay. Thanks Hector. Have a great day.