If your business uses the inventory feature of QuickBooks, it is essential to know about the Inventory Valuation Summary Report.
Located by clicking Reports > Inventory > Inventory Valuation Summary, the following appears (click the image for a larger view):
UNDERSTANDING THE INVENTORY VALUATION SUMMARY REPORT
In addition to listing all the inventory parts and inventory assemblies, this report also provides a recap of:
- On hand quantity
- Unit of measure (if used)
- Average cost of the item
- Asset value
- Sales price of the item and more...
IS THE REPORT CORRECT?
While this report provides a plethora of data, there are three key numbers within it:
- The on-hand quantity for each item
- The average cost for each item
- The total value of the inventory at the bottom of the report (not shown in the screen shot above)
WILL YOUR ACCOUNTANT HUG YOU?
In a well-functioning inventory system, the total of the inventory valuation summary report will equal the total inventory that appears on your balance sheet report (a summary of what you own and what you owe).
If it doesn't, here are some likely source of trouble:
- Journal entries made to "fix" the numbers - journal entries don't "fix" the inventory valuation summary report though
- Other postings directly to the inventory account without the proper quantity and cost per item being posted at the same time.
MORE THAN JUST THE TOTALS
In addition to verifying the report totals, it is essential that you verify the average costs of each item as well to ensure they are correct.
Posting errors, selling negative (where the invoice shows the on-hand is not sufficient enough to sell the item) and other missteps within QuickBooks can cause these average numbers to get out of whack very quickly. Bad cost numbers can lead to bad decisons related to gross profit margins!
Since inventory is normally a relatively large portion of the total assets of a business, ensuring that your inventory control system is providing the right results is essential to building better business finances.
NEED HELP SORTING IT ALL OUT?
Finding some leaks, cracks or sinkholes in your inventory within QuickBooks?
I can help.
Take advantage of my 25+ years of QuickBooks and accounting experience to help you get all of this sorted out and corrected. Before starting my own business, I was a CFO in charge of $4 million in inventory, so I understand the potential pain and concern you have in this area.
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