Track Inventory in Manufacturing Firms with QuickBooks 2014

Tracking inventory in a manufacturing firm in QuickBooks is more difficult than in other types of businesses. When you boil down everything to its essence, the problem stems from a couple of tricky accounting requirements:

  • In a manufacturing environment, the manufacturer combines raw materials items into finished-goods items. This means — and this is the challenging part —d that the manufacturing process reduces the inventory count and value for some items (the raw materials or the components) and at the same time 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.

QuickBooks solves the first problem related to manufacturing inventory; however, it doesn’t solve or address the second problem. 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 that make 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 ability to account for the manufacture of inventory in QuickBooks. The best that you can do is group items to combine into individual items in 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 in a customer invoice. This means that a florist selling red roses and vases can “manufacture” a crystal vase of a dozen red roses and then show the manufactured item as a group item in the customer’s invoice.

The one thing that’s problematic about 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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