From the AccountingCoach.com:
Under the perpetual system the Inventory account is constantly (or perpetually) changing. When a retailer purchases merchandise, the costs are debited to its Inventory account; when the retailer sells the merchandise to its customers the Inventory account is credited and the Cost of Goods Sold account is debited for the cost of the goods sold. Rather than staying dormant as it does with the periodic method, the Inventory account balance under the perpetual average is changing whenever a purchase or sale occurs.

Under the perpetual system, two sets of entries are made whenever merchandise is sold: (1) the sales amount is debited to Accounts Receivable or Cash and is credited to Sales, and (2) the cost of the merchandise sold is debited to Cost of Goods Sold and is credited to Inventory. (Note: Under the periodic system the second entry is not made.)

Under the perpetual system, “average” means the average cost of the items in inventory as of the date of the sale. This average cost is multiplied by the number of units sold and is removed from the Inventory account and debited to the Cost of Goods Sold account. We use the average as of the time of the sale because this is a perpetual method. (Note: Under the periodic system we wait until the year is over before computing the average cost.)

We have a photography business where prints & notecards are made to order. Sometimes printing is outsourced for larger prints.

In the past I’ve used a rather cumbersome process which includes inventory items (envelopes, notecard stock, paper, ink, packaging), and entering the finished products as inventory items (notecard sets, prints) which then are sold (sales receipt) and expensed (COGs). In a way its like this parts -> whole product -> sale -> COGs. This process has been used for several years now.

I also keep a XLS file that details our printing processes (calibrations, tests, samples & sales), images or notecard sets printed (which photo/series that is) and determines the cost/item sold to aid in pricing decision-making among other things. This XLS basically is where I determine what QBks inventory adjustments (value) need to be made for materials used & products created.

Perhaps obviously, I’m looking for a simpler way of dealing with the whole thing on the QBks side (that keep QBks B/S and P&L accurate) and how to transition to it from this probably “way too detailed” method we currently use (inventory items, inventory adjustments).

We enter all our purchases & sales via QBks (Pro 2007) so the data is there.

Any suggestions for a more sane approach?

Thanks for your help!

We have a manufacturing add-in (Small Business Manufacturing for QuickBooks) and are completing our integration into QB. We have the need to update the average cost (used in valuation) as we report receipts from work orders from manufacturing side. Any ideas on how this can done?

To adjust the original transaction, select the item in the item list and right click, select the QuickReport. Set the date range to “all”. Look for the very first transaction – it should be an inventory adjustment. That is what is created when you import a value when adding the item from Excel. Double click on it to open the actual transaction – it should be a posting to Opening Balance Equity. You can then change the quantity and value to be the correct one that you wanted to import.

Or, just make a value adjustment. You have to decide what account to post that to. See my article on this kind of adjustment at http://qbblog.ccrsoftware.info/2009/06/quickbooks-inventory-quantity-and-value-adjustments/