My business is very simple, I’m an acupuncturist and herbalist -trying to do my own bookkeeping. I downloaded the desktop version. Most inventory systems are way too hardcore for what I need, so I apologize if my question is super simple, I tried looking at the guides and doing a search here but I couldn’t find an answer.
I think I’ve figure out most things - my question is if I use my inventory for personal reasons - like I make my self and herbal formula to use - how do I adjust the inventory for this without it showing up as part of the inventory cost? I obviously can’t write that off as business expense. Can I just go to starting totals and subtract it from quality on hand there?
I thought I had things down but my inventory got all out of whack, I think my problem was I wasn’t clicking the use as delivery note when I made a sales invoice and then also wasn’t making a delivery note. Before I redo everything I just want to make sure I’m not doing another thing wrong when I’m making my adjustments.
Your welcome. Sadly I don’t use this feature so I don’t know how to solve your question other then with the Guides and above resource. Someone else here should be able to help you though.
The best approach might depend on how you have set up your business. The simplest method might just be to treat yourself like a normal customer and issue an invoice. You can set the discount and pricing as you wish. I typically use a journal entry and offset the cost of the inventory taken against my employee clearing account or a capital account (so ultimately I pay for the goods at cost price), but you may not have those in your setup.
Ultimately the inventory should be tracked and allocated one way or another – it can’t just be removed. How you allocate it will depend on your preferences, and might be limited by your local regulations. It might be best to consult a local accountant. Once you know where to allocate it, we can help you with the steps to do this in Manager.
My understanding is as follows (and I’m happy to be corrected by more qualified users):
If inventory is added to or removed from the business by any means, it will affect the cost of inventory. This is not avoidable. If you write it off without allocating it to an expense account, the Inventory - cost will increase with no corresponding increase in the Inventory - sales, resulting in a net loss to the business.
If you would like the net effect of removal of inventory on the profit/loss to be zero, you need to record income equivalent to the cost of that inventory. You could do this by issuing an invoice for the inventory at cost price, or using a journal entry as I do.
If you would like the removal of the inventory to reflect as a loss to the business, you can allocate it to an expense account (although you have said you can’t do this).
For further guidance it might be helpful if you can tell us about how you acquire the inventory. Do you purchase it from a supplier? Do you produce it yourself? Do you produce it using raw materials that you have purchased from a supplier?
So I just discovered the capital account portion. I’m a sole member LLC so I would be the only person to have a capital account.
Could I adjust the inventory using a write-off, and then make a journal entry where I credit the Inventory-cost account and debit my capital account? Or am I not understanding at all what a capital account is?
Basically I have an herbal granule pharmacy where I buy single herb granules from a supplier and then when I prescribe a formula I mix the custom formulation together. I frequently need a formula for myself - but I’m not going to have my own personal pharmacy and a second pharmacy for customers.
My first suggestion would be to do some more learning about double entry accounting, and to engage a local accountant to help you set up your chart of accounts according to your needs and local regulations. I think there’s a risk of overcomplicating things and creating a bit of a mess that will cause you more headaches in the long term. You’ll save yourself time and money by setting your accounts up properly now.
I think there’s only a need for a capital account if you are contributing funds to and/or withdrawing funds from the business. In my case I have a balance in my capital account from funds I put into the business, and sometimes I draw inventory against this balance instead of funds. It could be considered equivalent to drawing the funds and using these to buy the inventory with an invoice just like a customer would.
I think you’re overcomplicating things. If you want to offset the inventory against your capital account you could just use a single journal entry, crediting the inventory item and debiting your capital account. You will need to check the boxes for “Column – Item” and “Column – Qty” to make those fields available:
However, you can’t just keep debiting your capital account indefinitely without somehow crediting it to reimburse those expenses. Ultimately the costs for the inventory you take have to go somewhere. You are removing a business asset that could have been sold for income. You can’t just make it disappear. Once you have worked out where that cost should go (which is not really in the scope of this forum – rather consult a local accountant) we can look at the specific steps within Manager to achieve this. It should really just be one simple transaction.
Something else you might want to consider is whether you really need to use inventory items at all. You could potentially just record your herb granule purchases as expenses and the sales as income. Maybe consult your accountant about this too.
I have no idea how the US system works.
One of the businesses I use is an Australian Sole trader model. The method used for it is to have a Drawings account in Equity. Whenever money or inventory from the business is used for personal reasons it is allocated to this account. I rename it at the end of each FY to keep a check on current spending.
I use inventory write off for the items I/we use, and allocate to the drawings account, this debits the inventory and shows as personal drawing. This way I don’t need to use capital accounts.
My accountant is ok with this simplified method. But again I am not in the US so this may not work for you.
Yes you can, but as I don’t inject capital as a sole trader, there is no need to setup capital accounts just manually adding a drawings account to Equity is sufficient for my accountant
Well the function is build into Manager and if as a sole trader you frequently use the expense account function it will assign the account holder to use it without setting it up under Settings. I would recommend to use the build in function as it works as expected. Many sole traders do inject some capital to start their business also.
crikey…
It was just an example of a simplified method that works for me and that business model.
Yes the function is in manager, yes I use it for several other more complex businesses.
I’m sorry you have taken offense to an alternative suggestion.
