Denise Sullivan for AZ Central/Demand Media write: QuickBooks gives you several fields for each inventory category, such as the name of the item, description, number of units purchased and the total cost. The software will calculate the average cost per unit based on the information you enter. QuickBooks also automatically calculates the last shipment cost, including freight. You can use this field for internal reference to compare the current price of an item with your last purchase. When you enter inventory items on a customer invoice, the program will calculate the cost of goods sold.
Add-Ons
The Intuit Marketplace features a variety of third-party add-ons that expand QuickBooks' inventory management capabilities. Prices range from free to thousands of dollars. The Marketplace lists compatibility with QuickBooks editions so you don't waste money buying add-ons that won't work with your system. Check the customer ratings before purchasing any expensive add-ons. Each add-on offers its own set of features, such as bar-code reader integration, links to your company's e-commerce website for real-time inventory updates, forecasting modules and purchasing management. Certain add-ons may be industry-specific, such as AIMS for garment manufacturers.
Average Cost
Average cost is the only inventory valuation method included with Quickbooks out of the box. It is the most simplistic way of accounting for inventory. The total cost of a particular item is divided by the number of items currently held in your inventory. QuickBooks recalculates the average cost of the entire inventory when you enter a new purchase. Using average cost requires less record keeping than other inventory costing methods because the purchase dates don't matter. It's also less accurate, especially if the your material costs fluctuate widely between purchases.
FIFO/LIFO
You must install an add-on to use the first-in-first-out or last-in-first-out inventory costing methods. Both are more accurate than average cost method because the value of your inventory is based on the price at the time of purchase. With the FIFO method, the first items placed in your inventory will also be the first items sold. Under the LIFO method, the last inventory items purchased will be the first sold. LIFO is best if inventory prices have risen since the first item was purchased. It reduces the tax impact of holding inventory by applying largest cost against the most recent sales. FIFO is best when costs are on the decline and your oldest inventory was the most expensive. This method is also the closest match to the natural flow of physical inventory through your warehouse.
Individual Allocation
Individually allocating costs to single items is the most accurate method of tracking inventory, but is also time consuming if you have a lot of transactions to enter. This method is best for companies that deal in small numbers of inventory items or sell unique products, such as custom-furniture makers or dealers in collectibles.
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