Buying inventory is simple in QuickBooks. Create a purchase order, receive the items, enter the bill, pay the bill. Simple! Sometimes things don’t occur in this nice sequence, and it isn’t always obvious what the best procedure would be. What if you have to pay the bill before you have received the items? In this article I’ll give you some suggestions as to how to handle this situation.
Update: Intuit has added an “Enhanced Inventory Receiving” option in QuickBooks Enterprise V12 that addresses this specific issue – allowing you to create a separate receipt and bill transaction. See my article on this at http://www.sleeter.com/blog/2011/09/quickbooks-2012-enhanced-inventory-receiving/
Entering Bills Before Receipts
If you are using purchase orders, the normal process is to create the PO, then to enter the bill and receive against the PO. The bill shows up in Accounts Payable, the inventory items are received. However, if you are asked to pay the bill ahead of receiving inventory, this process won’t work. If you follow the normal process you will have the bill available to pay in the vendor center, but your quantity on hand for the item will show that they have been received and are available to sell, which is not the case.
You can enter a bill that is not associated with the PO or receipts of items, but later when you receive the items you are still asked to enter a bill. This must be done so that you can enter the proper cost of the received items. You don’t want to enter ANOTHER bill, and you want to close out that open PO, so what can you do?
The key is to use the expenses tab of the bill initially, and later change this when you receive the items. Let me show you the steps to take. We’ll start with a simple PO for a Cog.
Create a Holding Account
First, in our chart of accounts (COA) I am going to create an other current asset account that I will name Advanced Inventory. You can give this any name that you want, the idea is that this is a temporary holding account for the cost of the items. Talk to your accountant about this account – some people might want to make this a different type of account (an expense account, perhaps).
Entering the Bill
Now we’ll enter a bill for a PO. I’ve selected the PO, and the program shows the items to be received in the items tab.
If we enter the quantity received at this point the items are available in inventory, and that isn’t what we want. We are paying for the items, but we don’t want the quantity on hand to show that we have them.
Start by entering any corrections to the cost value of any item to match the bill. Then look at the items tab and you can see what the total value of the order will be ($1.00 in this case).
Click the Clear Qtys button at the bottom of the window to set all quantities to zero – the items tab will show a value of $0.00.
Select the Expenses tab, select the Advanced Inventory holding account that we created earlier, and enter an amount that is equal to the value that you are going to receive (the value that was showing on the items tab earlier).
Save the bill. You haven’t received the items yet, but you have entered a bill for them. The bill shows in your accounts payable. The cost of these items now show in the Advanced Inventory account. You can look at that account at any time and get the value of all items that you have paid for but have not yet received.
Receiving the Prepaid Items
At a later date you will receive the items. Go to the Vendor Center and locate the existing bill, then double click on it to open the bill. We want to populate the bill with the proper quantities that you received. You want to use the original PO to fill the quantities so that the bill is associated with that original PO. You must delete each detail line that shows in the items tab. Then click the Select PO button in the lower left corner. Select the original purchase order.
At this point we have:
- Updated the inventory balances.
- Posted the cost of the received items to inventory assets.
- Retained the bill, which may or may not have been paid already.
- Associated this bill with the PO, properly closing it.
- Removed the cost from the holding account (“Advanced Inventory” in my example).
I hope that is clear – let me know if it isn’t!
About the Author (Author Profile)
Charlie Russell is the founder of CCRSoftware. He’s been involved with the small business software industry since the mid 70’s, focusing on inventory and accounting software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor. Look for Charlie’s articles in the Accountex Report blog, as well as his California Wildflower Hikes blog.