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Managing Inventory in a Manufacturing Firm with QuickBooks 2011

Even with QuickBooks, tracking inventory in a manufacturing firm can be more difficult than in other types of businesses. The problem stems from a couple of tricky accounting requirements. QuickBooks solves the first problem related to manufacturing inventory; however, QuickBooks doesn't solve or address the second problem.

  • In a manufacturing environment, the manufacturer combines raw material items into finished goods items. This means that the manufacturing process reduces the inventory count and value for some items (the raw materials or the components) while at the same time it increases the count and value of the other, finished goods items.

  • In a manufacturing environment, the rules say that you don't just count the value of items in the finished goods item inventory values. You also count the cost of labor and factory overhead used in manufacturing the items.

Fortunately, as long as you're a small manufacturer, you probably don't need to worry too much about the second problem. You should ask your CPA about this. But don't worry; Congress and the Internal Revenue Service have provided a bunch of loopholes for making the accounting easier for the small guys.

If you're using QuickBooks Pro or some earlier versions of QuickBooks Premier, you don't have the capability to account for the manufacture of inventory in QuickBooks. The best that you can do is to use group items to combine into individual items on a customer's invoice. This approach sounds sloppy, but it isn't quite as bad as you may think at first blush. You can choose to show only the group item on a customer invoice. For example, this means that a florist can "manufacture" a crystal vase of a dozen red roses and then show the manufactured item as a group item on the customer's invoice.

The one thing that's problematic with the "just use a group item" approach is that it doesn't give you a way to track the finished goods' inventory values.

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