Updating Your Inventory Effectively

 

Bookkeeping for Crafters

 

Lesson Info

Updating Your Inventory Effectively

Any questions about that transaction where we had an inventory purchase and then we marked it yes, I am just wanting about inventory that's on ly for products that you're selling like you wouldn't put if I shipped something in stay flat envelopes I wouldn't put that I bought two hundred stay flat envelopes and then used thirty of them I don't keep track of those kinds of things um no I mean that's not that's not technically part of your inventory I mean you're certainly welcome to keep track of quantities of those things and you could like copy and paste that inventory sheet sheet and you could label it uh shipping supply inventory but it wouldn't be part of your cost of goods sold right because we talked about the difference between the product's packaging versus like the envelopes that you put it in okay it's still technically an office supply or a shipping supply depending on how your categorizing that uh yeah you could totally keep track of that my I mean my guess is that like from...

an inventory perspective you want to make sure that your accounting for everything because you're eventually going to sell it like if you if you're missing two of your flat envelopes out of the two hundred you bought my guess is you don't really care um it's not worth spending your time probably tracking all of your envelopes and stuff you buy them you use them and that's it okay um but yeah that's a good question uh the inventory sheet would on ly track yes, your own products that that stuff that's in cost of goods sold a question about inventory you take human tree the beginning of the year and obviously at the end but how about the items you create? Meanwhile, how do you add them to the inventory numbers? That's a great question. And, um as we go down the list and we get to this item that I have here a toe bottom in january thirtieth this blank card we're going to talk about things that make up inventory so this blank card went into creating a greeting card which also had an envelope it off so I had, uh, ink on it um so that's all different pieces that I put together as materials to create a finished piece of inventory. So we're goingto come back to that in just a couple of minutes when we go through a few more of these things carry forward elementary from the year before. Well, um when I put the letter together I have everything separated by year just because it makes it easier to do my taxes that way uh, my fiscal year is from the first of january to the twenty first twenty first thirty first of december, so you know, whatever calendar basis you organize things around is how you would want to separate your sheets and then um you know for my inventory summary uh whatever I come up with with my ending quantity for twenty fourteen eyes what will be my beginning quantity in two thousand fifteen? Because presumably nothing is magically disappearing uh in the you know, tiny space there is no real space in the imaginary space between you know, eleven fifty nine on december thirty first and midnight on january first rate those numbers should be the same. Um so I carry over in the summary um the quantity well in both sheets you could uh if you really wanted to but in the summary I carry over the ending quantity for the previous year to the beginning quantity of the current year if that makes sense um I hope that answered that question. Okay, great let's go back teo where we were uh okay, we've talked about the hand button uh and then I got a bill for all of my december uh etc listing fees those were the like twenty cents per item that you okay charge to put it up on the website whether it sells or not, where would I put those what account with that going and I guess is selling please yeah, my wrong selling commissions and fees maybe it goes under the uh it does go within the commissions and fees buckets and uh I would put it under selling fees myself yes you could also put it under advertising and promotion if you wanted to track that uh in that category instead that's totally fine it's up to you um I tend to put it in selling fees um I mean it's sort of advertising and promotion in order to have your stuff up on etsy because people will see it but I tend to think more about advertising and promotion as deliberate pushes to get your products scene so if I were to buy you know advertising on etc then I would put that in advertising and promotion I tend to put the listing fees um just to have something in my shop uh in selling fees because I literally can't sell the stuff without it existing in the store um and the fact that people will then see it in search results is kind of a bonus um and then underneath that we have the etc sales commissions which would go where commission's in commissions yeah that's a nice easy one um any questions about those uh even though it will show up on my bill as a dollar twenty for the listing fees um I put it in his a quantity of six uh because I wanted to track it by listing and again we'll talk more about this in the c class uh but it's nice to break things out on a sort of per piece basis when you can if that's something that you want to track okay let's look at another inventory like full peace inventory purchase before we get into uh what I mentioned earlier where we're taking lots of different materials and supplies and putting them together into a piece of inventory so this address is the question of the deposit um who had the question about the deposit early was okay. Okay, so jackie this one's for you uh I started having, uh my plush toys manufactured eventually because as you'll see in uh the next segment uh thie individual product profitability my favorite segment uh, making the stuff myself was just no matter what I did uh to the process into the materials was just not getting me there uh in terms of profit but it's just not breaking through into the black uh so when I ordered uh, three hundred of these steak pillows um at three dollars and thirty five cents apiece uh I had to pay a fifty percent deposit uh in order for them to start manufacturing and then when they were done I paid the remaining balance um so I got billed for both or they send me the invoice that showed me both the deposit and the um balance in the same bill so you could either enter them in on the same day? Um if you've got them in one bill one invoice or if they actually send you to separate invoices you could wait and just enter the deposit now and then entered the balance later when you get it um I got both in the same bill even though only half of it was do then and the other half was due later um I paid via wire transfer which uh if you want to you could also mark as an e f t is an electronic funds transfer um and then there were the's associated with that. So if this were my real ledger the next line after this would probably be my wire transfer fee because that's not cheap in fact let's add that let's also add that and then you guys will tell me where to put it. Well, who wire transfer fee let's say it was probably around thirty five bucks and where would I put this guy's merchant services? Well, that's a good guess and you both get the same thing at the same time? Unfortunately, it's not correct. Um merchant service fees are what people charge you for getting money via credit card usually uh so merchant service fees are what I pay to square what I paid to pay pal what I paid two etc in order to process people's credit cards for me but I'm paying money and I'm being charged this b anyone have an idea where it might go in accounts this is kind of a tricky one it's at the very very end of your chart of accounts I have it under miscellaneous expenses I have god bank charges and then business related gift under there so we're going to put this under miscellaneous expenses I like to give you trixie things because you're going to have to use them at some point okay uh let's look at this uh blank card example will look this last inventory peace oh well we have to enter this in our inventory actually, um although well okay, so the uh this is rose ten and eleven so let's say that I have let's say that this first piece is due on the thirty first of january and I paid it on the twenty eighth of january but this next piece isn't due until I don't know march fifteenth or something and I haven't paid it all yet uh what this will do is it will affect my january payments so I've paid half of this bill so it will update my january payments which we will see is uh important from when we look at the cash flow forecast in a future segment how much cash you have now how much you can expect to have next month next quarter et cetera um that's very reliant on payments um because as it says in its name cash flow forecast it's all about your cash and not your cruel right has nothing to do with your income or your prophet has to do with how much cash you got on hand and how much cash you've paid out so uh I haven't actually gotten this inventory yet I've been billed for it and I've paid it but I haven't gotten it yet because I've just put in that I've just put down the deposit of paid half of it so um I've gotten a bill so I've got an expense I've paid for half of it so I've triggered a payment but I still haven't received any inventory it so I'm not actually gonna update my inventory sheet because I don't have the stuff yet um maybe the whole boat you know, sinks in the middle of the pacific and then and that's when you hope you have insurance right? Can you hope you've made that little insurance expense so that you don't lose all of your product into the bottom of the ocean? Um although with my latest product line that would be pretty funny since they're all sea creatures if they all just got dumped overboard and ended up in the pacific floating around these plush glow in the dark seat anyway that's a funny image to me uh so you won't actually update you're inventory until you get the stuff um let's, let's, go to something useful and look at this blank card. Okay, so I have bought some blank cards cause I'm gonna make some greeting cards that say I love you more than bacon on them. Um those were a big seller for a long time. Uh, and the blank cards were, uh, one hundred twenty dollars. I'm sorry. One hundred twenty three sixty I bought one hundred twenty of them, so that backed out into a cost of a dollar and three cents per card. Um, you know, let's say about several past six packages of twenty um and this was the total and then within that I've got some prepaid sales tax I say I just bought them from the local card shop um they didn't know that I was turning them into a sellable product, so they charged me sales tax for that. So I need to pull out of my receipt the ten dollars and fifty cents that I spent in sales tax so that I don't then send it in with all my other sales tax. At the end of the year, I can deduct the sales tax that I send into the state by ten dollars and fifty one cents because I already paid it to them on this whole sale purchase that I wasn't supposed to pay any sales tax I've already sent them in ten dollars and fifty one cents by way of this card store presumably um so I am not going to make that part of my payment when I pay my sales tax return later on does that make sense okay do we have any questions about um these expenses so far before we go into this inventory assembly yes um stop me if you're covering this later but um how do things like enterprise software that's build either on a monthly or some sort of recurring basis how do you enter those? I would do it just like I do the rent um whatever day it builds you whatever day it hits your credit card or your bank account or whatever um is when I would put the data in um and if you want to if you know you're gonna be using it all year and the price is not going to change you could front load that you could just put all of those in there um and that will help you down the line with uh, budgeting and forecasting if you know you're gonna have that expense every month and you've already accounted for and it's already part of your sheets right? So that's kind of nice um when you have those really predictable expensive same goes for income and I'm well you know I'm gonna show you this later uh but yes so you know if you look at your credit card statement of your bank statement you'll see when the payment hits and it's almost always the same date every month it's the first the tenth whatever um so that's when I would put it in and this sheet is already built out um for you to put in things by month so er you could just load it into each month you know as it comes up follow up question yes um if you get a better eight for paying for the year for instance like web hosting or um you know squarespace for instance has a better rate if you pay all the ones um is there any reason or any situation which you'd want to distribute the cost into a monthly expense even though you actually only paid all in one you paid all of it for the year in one month for a service you can't I really do that from like a tax standpoint you could only depreciate actual assets assets um paying for web hosting is not really an asset. So I mean if you if it was something that you were going to buy up front just one time um but that you were going to use for a certain amount of time for your bookkeeping purposes, I suppose you could depreciate it over years or months um but unless it's a huge expense that you're not going to have again uh there's really no reason not to just expense it as one line item when you paid for it even though it last you all year thanks. Any other questions? No. Okay, so let's look at this blank card um we've talked about the prepaid sales tax part of this uh it goes I didn't even ask you what it went into now I've revealed the account uh rats that's fine. I'll trick you and quiz you on other things, eh? So it goes into material supplies for cost of goods sold er and now let's open up our inventory detail. So on the thirtieth of january I bought a I bought many about some blank cards one hundred twenty of them cost per was a dollar in three cents I haven't sold or purchased or uh well, I've purchased them, but I haven't, uh put together anything to be sold yet. So uh, I cannot update my inventory summary until I've got the rest of these pieces in place. So let's say the next day on the thirty first I buy the envelopes got one hundred twenty of those they were eighty nine cents apiece they were purchased um and you can put notes in here too if you have a hard time keeping track like if you sell only stationary goods, for example and you don't know which card you bought those envelope apps for or it may be but for two different cards um you can put that in there so in the notes for example I'll say big lips baking card and barn card um and if I don't have uneven distribution there I can say uh you know, sixty of that one no that's even uh eighty of them were for the bacon card and we need to buy one hundred twenty. Forty of them were for the barn card oops. Okay and then the envelopes are the same thing and then for simplicity's sake let's also assume that the, uh ink that I googled the ink spell go co come on um that the ink I purchased for them uh is also just one color that prince over both cards or no maybe not no let's be more realistic let's say that one of them gets printed in red one gets printed in blue let's change this to red ink. Okay, now I only purchase uh, reading by the tube or by the bottle. Um but for simplicity's sake will say that I know that I get one hundred twenty cards out of this a bottle of ink as opposed to some other random number um so I'm going to take the cost of my bottle of ink let's say it was three dollars and twenty five cents um this is the wrong column for that three dollars and twenty five cents divided by one hundred twenty is point two seven eight cents per card in ink okay now uh how much did these cost altogether let's find out let's let's sum up these guys you can also just adam manually I'm just doing this because it's faster so each card costs me a dollar and ninety five cents if you round it uh to produce in inventory so I've purchased all of these things and now in my inventory summary I can say that I have bacon cards I've got eighty of those I had a tea at the beginning um how many did I sell? I sold seventy five of them I kept three of them for myself so I quote let's say I don't have any of these left three of them for myself and I lost two of them so my ending quantity zero I sold all my inventory of bacon cards that year so I khun er write all of that off er and then my barn cards well just say it was the same but it wass uh eighty of I mean forty of them forty, thirty five three and two uh okay, so hopefully my inventory matches and let's put on here uh the day that they all went together into a card so I bought everything and then on the first of february I made some bacon cards made eighty of them at that cost they were purchased and then I also made some barn cards. I made forty of those. They were the same purchase price paste the value. Uh, okay, uh for the inventory detail because you have a million different products that are all different things. Um you're not going to add all of this up together like you're not going to take the cost column and add it all up into a total, um so it's okay that you have, you know, the blank cards, the envelopes, the red ink all together. Um, that's totally fine. Uh, and then over here, you know you've got this stuff in your notes to denote that, um, are there any questions so far about the inventory that were tracking? This is not terribly sophisticated. Inventory tracking. If you need sophisticated inventory tracking, probably wanna plug into some bookkeeping software. Um without knowing what products you guys sell there's no way for me to set up this sheet to track your inventory for u s o it is very manual by necessity in this particular area. Um but if you get comfortable with the rest of the stuff in the spreadsheet, it might be nice tio move on to graduate teo software or program our service that, uh, tracks your inventory for you a little better especially if you have a lot of retail in a lot of pieces that you're selling, um and a lot of things that you combine into products like we did with this card. Well, that's an interesting point, because fourteen people have asked more or less the same question. Michael jane castor zero one to raise central and daydream prints they're all asking they don't necessarily carry product they carry a lot of components that then if somebody orders something, they put all those components together on that product gets shipped out immediately so they never carry product inventory. They carry all of these components do they track them in the same way? And how does that? How does the components to attract in cost of good filled so that's a good question your income and expenses if you create on ly custom merchandise are still going to operate the same way you won't ever have inventory purchases as part of your cost of goods sold, so you won't need to have that as an account as a category in your ledger. Um, it's fine to take that out. Uh, and when you sell something you'll still be tracking in his product sales um and when you have expenses, you'll still be marking that as materials and supplies for cost of goods sold if you're not carrying inventory, um it's not uh you don't really need to track your inventory in the same way because it's always going out as soon as it comes in, right as soon as you make it it's going right out the door um so you might want teo keep track of the supplies you buy if you use them for multiple projects for multiple products if you only do like custom greeting cards um then you wouldn't be tracking these, you know, by the eighty bacon cards that you made the forty barn cards um but you you would want to keep track of all of those materials and supplies uh that you purchased um and does that sort of answer the question? I I hope um to look at it in a slightly different way. Uh, if you're making, uh, custom pieces one at a time, I mean, I'm I'm trying to guess if people are asking about this for the sort of like tax purpose or for the actual business tracking purpose um, for actually tracking your cost of goods sold, it doesn't matter what you have in your inventory because the incoming the expenses are the same, right? It doesn't matter what you did as far as losing any inventory taking any out for yourself um, you know, your sales of your sales, your expenses are your expenses um if you're looking at it from the sort of tax perspective where you have to put in, like what's the value of your starting inventory versus what's the value of your ending inventory, you're not carrying inventory. So that's, not really an issue. That's. Not really a part of this. Um, you're, you're not holding on to any inventory. When you, when you have these supplies, you have supplies for your cost of goods sold, but you don't have inventory. You can either create inventory by combining materials and supplies together, or you can buy it outright. Like I bought the steak pillows from overseas or like I bought the ham buttons. Um, if you're not creating inventory and you're not purchasing inventory, you're not following your inventory, and you're not tracking the beginning and ending value for the year. I hope that clarifies a little bit.

Class Description

It is common to be intimidated by math and money, but managing your business’s finances doesn’t have to feel overwhelming. Bookkeeping for Crafters with Lauren Venell will give you the confidence and skills you need to start and maintain your own small business ledger.

Lauren is an artist and educator committed to making financial solvency accessible to independent entrepreneurs. In Bookkeeping for Crafters you’ll learn the basics of managing your money and how doing it yourself can reveal important opportunities for your business.

You’ll learn about managing different types of income and expense accounts and how to painlessly prepare for tax time. Lauren will make predicting fluctuations in your cash flow straightforward and easy while helping you develop a system that is right for you – even if you prefer pen and paper over spreadsheets.

If you are ready to change your relationship to money and manage a ledger that is customized to the way you do business – this is the class for you.

Be sure to check out Lauren's other course Bookkeeping for Etsy Sellers.

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