Seeing is Not Always Believing in QuickBooks Enterprise

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If you have ever entered an inventory transaction, or read an inventory report, and you don’t see what you were expecting, you are not alone!  There are a few ‘quirks’ in QuickBooks Enterprise (desktop) that gives misleading information.  Some require special attention; some could be fixed with programming, but you should be aware of all of them.

Can’t account for the Account.  The first one is a mapping error I see in almost every inventory file.  In this case, an item is purchased and sold.  However, the item is setup as a one-sided item, instead of a two-sided item, impacting the accounting incorrectly.

For example, say Justin is a recently hired purchasing agent with limited knowledge of QuickBooks.  He is told to enter some items that the company will soon be selling.  Justin goes to the Item List, selects ‘New,’ and chooses to create a Non-inventory part, since this is something the company doesn’t need to track.  He dutifully enters the information, and when he sees the ‘Account’ field, he enters ‘Materials,’ since he is looking at this screen from the purchasing perspective.

But what does ‘Account’ mean in the broader sense?  QuickBooks was setup to default to a, ‘one-sided item,’ for types including Service, Non-Inventory Parts, and Other Charge items.   By default, QuickBooks assumes this item is ONLY sold, not purchased, and the ‘Account’ field refers to the income account, NOT the purchasing account.

If this went uncorrected, the item would be received, and the sales or customer service person would enter the Invoice:

However, this is how the Profit & Loss Statement would look:

When a one-sided, non-inventory, service or other charge item is setup this way and sold, it actually creates a negative expense or COGS entry, not a positive income posting!  And while the ‘bottom line’ might look correct, the numbers are falling into the wrong accounts.

What Justin should have been instructed to do was to check the box, ‘This item is used in assemblies or is purchased for a specific customer:job.’  This ‘opens up’ the item screen to a purchasing side (left) and a sales side (right).  He could then enter the correct accounts, as necessary:

Note: when the item screen is opened up to a two-sided window, the original ‘Account’ field is now exposed to actually be the, ‘Income Account’ field. 

Until Intuit fixes the labeling on this one, we need to be vigilant about telling our clients and teams to be aware of this confusing setup.

To Build or Not to Build.  OK, you might have come across or been familiar with that hiccup, but now I’ve got one you probably didn’t know about, and it can cost your clients dearly when purchasing.

First, we need to be clear on what a couple of fields in the QuickBooks inventory represent:

  • On Pending Builds – means components, including raw materials and sub-assemblies, which are listed on Build Assemblies started, but not yet completed.
  • To Be Built – means complete assemblies, including sub-assemblies or finished goods assemblies, in the process of being completed on a Build Assembly, but not yet completed.

It’s kind of like two sides of a coin – the components are what we are going to consume once the Build Assemblies are complete, and the assemblies (sub or finished) are what is going to be built once pending status is taken off and the Build Assembly is completed.

The ‘Inventory Stock Status by Item’ report should reflect what is available at the current moment.  Many times, operations and purchasing people use this report to make build assembly and purchasing decisions.  However, the report now gives misleading numbers in the Available field for assemblies, and I’ll demonstrate how.

If you have QuickBooks Enterprise 18.0, open the ‘Sample Manufacturing Sample File’ that comes with the program.  (If you don’t have the program or the file, just follow along with me.)

I will be focused on the ‘1000-MC; Manual Cover 1000’ assembly item.  This is a finished-good item, and it is not included in any higher level build assemblies.

Looking at the item list, and by rearranging the columns, this is what QuickBooks shows:

This makes sense as the 1000-MC assembly is not a sub-assembly, so it should not have any quantity on Pending Builds, but there are eight waiting to be built on Pending Builds:

If the client is going strictly by the Inventory Stock Status by Item report to make buy or build decisions, then the report should reflect the above information.  However, it doesn’t.  Note the number of Available:

The, ‘For Assemblies’ column incorrectly includes the eight that are on Pending Builds.  The ‘Available’ field then picks that up as a part of the normal formula of:

What the ‘For Assemblies’ calculation is doing is that it’s deducting the ‘To Be Built’ quantity when it should not.  The ‘To Be Built’ numbers should not be included.  Once the finished good assemblies are built, then they would be added to ‘On Hand.’  Only raw materials or sub-assemblies, meaning assemblies that would be used in higher level assemblies, that are awaiting consumption on a Pending Build would be included in the ‘For Assemblies’ field.  The 1000-MC is not a sub-assembly of any other assembly.

The uninformed production manager or purchasing agent will create or buy too many products with the way the calculations are made now. 

The only fix out of this is for Intuit to change the formula for how it calculates the ‘For Assemblies’ on assembly-type items.  In the meantime, users will have to run the Pending Builds report to add back the finished goods items that are waiting to be built.

Sometimes, it’s the Cost; sometimes, it’s not.  Ever had a client ask you, ‘what’s my cost on this product?’  And you struggle to give her an answer from what you’re looking at in QuickBooks?  You’re not alone! 

When you look at an inventory part of assembly screen, it lists several types of ‘Cost:’

  • The green ‘Cost’ field is a ‘static’ field that requires a human to enter.  Without going into a lot of detail here, this number is basically used in one of three ways: 1) to have a default entry on a purchase order; 2) to have a starting value when creating a new file and an inventory quantity adjustment needs to be made; or 3) to have a base figure in order to base sales prices from.
  • The blue ‘Total Bill of Materials Cost’ can be misleading.  This is not the sum of the average cost of the components.  It is the total of the amounts in the Cost fields from each of the components (see more below).
  • The orange ‘Average Cost’ is the true cost of the item, and what will be posted to COGS when sold.

The ‘cost’ listed for each component in the Bill of Materials is taken from the ‘Cost’ field of its Item Record.  If you want the Total BOM Cost to change, you have to manually change the item’s cost in that item’s record:

So, when a client asks you what does my item cost, refer to the Average Cost field in the item record.  To see how the average costs have changed over time, view the Inventory Valuation Detail report under the Average Cost column.  That will show you how the item’s value has changed over time per transaction.

Please let us know if you have found any other 'blind spots' in QuickBooks like these by posting your observations using the 'comments feature' below this article.