How do I split my current cost of goods sold accounts?

[SumpinSpecial]

My shop is a combination of in-house inventory and drop-ship merchandise. I've been accounting for both in the same cost of goods sold and sales accounts. I think this might be a problem going forward (and maybe on taxes) because now I don't have a clear value of my in-house inventory. By that, I mean the value of the stuff I have on my shelves. I can split things going forward, but I'm not sure how to split what I have currently. Do I need to do journal entries to debit/credit things to fix this?

To illustrate, I need to split "wholesale purchases (COGS)" into "wholesale purchases" and "dropship purchases", and also

split "sales" into "in-house inventory sales" and "dropship sales"

Advice?

[SumpinSpecial]

Okay just to clarify, I've been working on this and can ask the question a little better I hope. I've just done a manual count of my inventory so I know what the total value is as of today.

But looking at Quickbooks again, I see that it keeps track of income and expenses (duh), rather than ongoing value of stock that's sitting on the shelf. I know that from now on I need to manage my inventory value with the "retail method", which means that I have a beginning inventory value (my counts today) and then do a little simple math to arrive at the final inventory value at any point in the future. It's a formula like this: beginning value + purchases - sales

So I'm good with that. What I'm still confused with is how or where to update my books with the beginning value. Because it's early in the year, most of my wholesale purchases happened last year, and most of my inventory is also held over from last year. So if I try to deduct the current value from the "wholesale COGS" expense account, it will go negative and I'm pretty sure that would be screwed up.

Should I just leave it as-is and start recording purchases correctly from this point on, and then over time things will end up right?

[vangogh]

First know that I'm not an accountant or bookkeeper and your question is far from my area of expertise. I'm mainly replying to keep your thread active and hopefully bring it to the attention of people who'll know far more than me.

Maybe I'm missing something, but if your sales are less than the value of inventory, wouldn't that result in a positive value? You said if you deduce the current value from wholesale COGS, but you adding that number and subtracting sales, which you said are still low given the time of the year?

Assuming I did miss something, I'm thinking it makes sense to make an adjustment to make everything add up at the start of the year. I'm thinking of a brand new business that hasn't made sales yet, but opens with an inventory of goods In that case you couldn't do the math and would estimate or find another way to put a value on the inventory. It seems like that's similar to your situation so maybe it's the best way to start. Again, I'm not an accountant so know I'm just tossing out some thoughts.

Hope something in there helps.

[turboguy]

I have never used Quick Books. We use Sage/Peachtree but I know that Quick Books is a very good program and probably the most popular accounting program on the market.

My guess is that your problem is one of two things. Either you have the wrong version of Quick Books or you did not set it up right.

For it to work right you don't only have to set up the beginning inventory, you have to set up each item of inventory in Quick Books. Set up properly you should have each item. Lets say you start of with 10 blue widgets and 5 green ones. Blue widgets are $ 20.00 each and Green ones are $ 40.00 each. So Quick books should show you have those widgets and will total the amount to $ 400.00 10 @ $ 20.00 and 5 $ 40.00. So you sell one blue widget. Quick books should show you have now 9 blue widgets and $ 380.00 in inventory. So now you sell a yellow widget that must be drop shipped. It won't change your inventory but will show your profit and that you paid x amount and sold it for XX amount. Your inventory would still show $ 380.00

My guess is that you just entered the amount of inventory you have and not each item with the value. Then when you buy more if the price changes Quick Books should automatically adjust the cost with the new pricing.

Without an accurate inventory you would never know if you were making or losing money.

[SumpinSpecial]

Okay, looking around a bit after reading your responses, and pondering this. I think I figured it out for now. I do have the "wrong" version of QB. I have the lowest paid subscription, which is all I can afford at the moment. For whatever insane reasons, Intuit assumes that at this subs level you only need to track parts or services. I have to upgrade to be able to track sellable goods. So yeah, I configured it so that I'm only selling "sales" instead of actual inventory, and tracking my inventory in Excel. We actually covered part of this issue in the topic I started about cost accounting.

For now, what I decided to do was to have another Excel worksheet that enables me to pull inventory valuation at a moment's notice, by plugging in the wholesale sales income and wholesale purchases expenses from QB. To facilitate this, I did split my "sales" income account into "dropship sales" and "wholesale sales", and split my "purchases" expense account into "wholesale purchases" and "dropship purchases". It's a little around the maypole, but not terribly onerous for now.

Also, I realized that I didn't need to back anything out because so far this year I've only had dropship sales. I'm placing a wholesale order this week, so will account for that money in the correct place, which means 2017 starts clean and tidy.

[jamesray50]

It's perfectly fine to keep track of your inventory in excel. In QuickBooks, do a journal entry to adjust the Inventory account to actual as of 12/31/16. You might have to estimate it if you didn't do an inventory count at the end of the year. To estimate, take the latest inventory count you did, add what you sold and subtract what you purchased, then either debit or credit the Inventory account for the value of the inventory. The value of the inventory is what you paid for the items. Cost of Goods sold is the other side of the entry.

Your inventory purchases do not count as expenses (cost of goods sold) until you sell the items.

Periodically count your inventory and adjust the value as needed.

Hope this helps!