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Amazon to QuickBooks Online Accounting: Using Purchase Orders to Receive Inventory

Use purchase orders in QuickBooks Online to properly record inventory purchases and receipts. Many Amazon sellers don’t use the proper workflow when receiving inventory for their Amazon business.

While you can use other Vendor documents to receive inventory (Expense, Check, or Bills), these transactions make immediate changes to your accounts.

These Vendor documents don’t work too well if you’re ordering inventory from overseas or if there’s a delay between order and arrival date. By using Purchase Orders, your inventory quantities and accounts won’t be affected until you create the related Bill.

We’ll go over how to properly use Purchase Orders in QuickBooks Online and we’ll see how using Purchase Orders can properly track your inventory accounts.

Creating Inventory items in QuickBooks Online

Before creating your Purchase Orders, you’ll have to create the Inventory item in QuickBooks Online. While you can Add New inventory when filling out the Purchase Order, you’ll want to understand the required fields when creating inventory.

QuickBooks Online Inventory Add

We highly recommend that you use the Amazon SKU field for the Inventory Name field. That’s because the Name field in QuickBooks Online is unique.

Many sellers use Amazon’s Product Name field for the Inventory Name field because both fields are “Names.” But that’s a mistake because the Inventory Name field is limited in the number of characters it can contain, whereas Amazon’s Product Name field can be quite long.

What will end up happening is that you’ll have to truncate the Inventory Name, causing a lot of confusion for you and your employees. Amazon’s Product Name field can also be changed, causing further confusion.

The Inventory SKU field in QuickBooks Online is not unique. What that means is that you can have multiple inventory items with the same SKU identifier.  We suggest you put your ASIN here. That way you can track your transactions using Amazon’s SKU or ASIN.

You shouldn’t manually enter the Initial quantity on hand unless there has been some kind of mistake. Enter zero for this field. When creating inventory items, you’ll want to use Purchase Orders and Vendor documents to add to inventory.

If you manually enter the quantity of inventory you’ve purchased and you later create the Bill, you’ll end up with double the inventory.

The As of date field is very important. This date should precede any transaction related to this inventory item. Otherwise, you won’t be able to create invoices with dates that precede the As of date of the inventory item. If you’re using FBA, you can set the date that the item was received at the fulfillment center. Or just use the date you placed the order for the inventory.

For example, let’s say you pre-sell 10 units on October 1. But you later create the inventory item and set the As of date to October 10. When you later create an invoice, QuickBooks Online won’t allow you to select a date of October 1 because the inventory item didn’t exist then. You’d have to either post-date the invoice to October 10 or go back to the inventory item to change the As of date.

For most sellers, post-dating the invoice may not matter. Running the reports for the month or the year will give you the same numbers. But if you run reports daily or weekly, then all of your October 1 transactions will be pushed to October 10.

Finally, you may put your Product Name under Sales information. This field is the sales description that displays on the invoice. This isn’t necessary since Product Names may be adjusted often on Amazon. If you constantly adjust your Product Name to optimize your listings, you’ll have to go back to the inventory item to adjust it as well.

See image below for matching Amazon labels to QuickBooks Online Inventory item fields.

Inventory Item

 

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Creating purchase orders in QuickBooks Online

You should note that Purchase Orders don’t affect your company in any way. Purchase Orders don’t modify your transactions or accounts until you Copy to Bill.

Location of Purchase Order in QBO

Filled Purchase Order

If this is a brand new inventory you’re receiving, then you’ll want to set the starting quantity to 0 when you create the inventory item. When you Copy to Bill, QuickBooks Online will increase the quantity by the Purchase Order amount (unless you adjusted it on the Bill).

Save the Purchase Order when ready. The next step is to Copy to Bill so that QuickBooks Online will receive the inventory.

Purchase Order Copy to Bill

If you’ve already paid for the inventory, click on Make payment and select the Bank account you used.

Vendor Bill Make payment

Select Bank account for Vendor Bill

Once you’ve created the Bill from the Purchase Order, your inventory quantity increases by the quantity on the Purchase Order.

Inventory Report

Why can’t you just create a Vendor Bill? The moment you create a Bill, QuickBooks Online will adjust your inventory.

If you haven’t yet received inventory, then you may sell inventory you don’t have. While you may be able to keep track of this, your employees may not. And if you’re dealing with a lot of SKUs, then it’s unlikely that you can remember everything.

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What to do if you’ve prepaid for inventory

In many cases, you’ll pay the vendor before you receive your inventory. When this happens, you’ll want to document the charge so that your bank account reconciles properly. It could be a month or more before the actual inventory arrives.

To handle this case, we’ll write a check into the Prepaid Expenses account for the Account details section. This will debit your bank account and credit the Prepaid Expenses account. Don’t select any items since QuickBooks will adjust inventory for any item you select.

If your QuickBooks Online company doesn’t have a default Prepaid Expenses account, you can create one with Account Type Other Current Assets and Detail Type Prepaid Expenses.

When the inventory finally arrives, you can Copy to Bill and add the Prepaid Expenses account in the Account details section. Since the Bill is $0, you won’t have to click on Make payment.

Location of Check in QuickBooks

Check Filled out

Once you’ve written the check, you’ll see the accounts debited and credited properly.

Chart of Accounts with Prepaid

Remember that Purchase Orders don’t post any transactions to QuickBooks Online. You may want to put the Prepaid Expenses account in the Purchase Order as a reminder.

Prepaid Purchase Order

Once you’ve Copied to Bill, QuickBooks will receive in the inventory and automatically calculate the per-unit cost when you create the invoice. Any reports you run will accurately reflect the Cost of Goods Sold.

Filling out Vendor BIll

Once you click on Save for the Bill, you won’t have to make a payment since the balance is $0. QuickBooks Online will automatically adjust your inventory and cost.

If you haven’t yet paid the Bill because you’ve purchased inventory on terms, then make sure you go back to pay the Bill when you’ve paid your Vendor.

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See how FIFO works in QuickBooks Online

Here we’ll see how FIFO adjusts the various accounts when properly using Purchase Orders in QuickBooks Online.

Inventory Report showing POs and Invoices

Let’s take a look at this sample inventory report. The first bill occurred on June 1 with 100 units at $10. In the next month or so, we’ve recorded sales of 90 units at $20 each. That leaves us with 10 units remaining in stock.

We’ve recorded another bill on September 1, but it’s for 100 units at $5 this time. We now have 110 units, with 10 of those units costing us $10 each and 100 of those units costing us $5 each.

On October 1, we’ve recorded a sale for 30 units on Invoice #1070. You’ll see 2 entries on the report because QuickBooks Online splits the purchases up to account for the difference in price. Notice that of the 30 units, 10 of them were recorded at the $10 price and the other 20 units were recorded at the $5 price.

If you use average cost and adjustments instead of Vendor Bills, you wouldn’t get accurate reporting since the average cost of goods sold would have been $7.50 ($1500 divided by 200 units). With 110 units sold, you’d have a Total Cost of Goods Sold value of $825. That’s a difference of $275.

Anyone looking at a report for the period would mistakenly see net sales income of $1575 with average cost instead of the actual $1300 with FIFO. The value of your Inventory Assets account would also be incorrect.

By using Purchase Orders and Vendor Bills to receive inventory, QuickBooks Online will automatically calculate and display the correct values for the accounts. You’ll no longer need to enter inventory Cost or worry about typing in the wrong numbers.

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Learn how to handle other accounting aspects for your Amazon business: