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Jax 12
May 8, 2024
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Flooring Line to purchase vehicles/inventory and net income is decreased

  • May 8, 2024
  • 1 reply
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When I take an advance out on my flooring line to purchase a vehicle, my bank transfers the money into my banking account that is linked to my QB online. The advance line is not linked, but I manually have an account set up under other liabilities. When I go to categorize my transaction I enter it as a transfer from that manually set account to my checking account. Then when I purchase the vehicle, I start by creating a bill and in the item detail section I select add new and then is here I enter the vehicle information. The income account is sales of product income and the expense is Inventory purchase (expense account) quantity on hand is 0. Then I pair my bill with the check I wrote out of my checking account and it will show I have 1 in inventory. My issue is, when i do this it brings my Net Income on my P&L down. So say I have a Net Income of $5,000. I want to floor a vehicle for $10,000. I call my bank they do the transfer and I do step by step what I explained. My Net Income on my P&L will then be -$5,000. my accountant says that is not correct but has no advice on how to fix it. PLEASE HELP!! Thank you in advance 🙂  

Best answer by Rainflurry

@Jax 12 

 

"Then when I purchase the vehicle, I start by creating a bill and in the item detail section I select add new and then is here I enter the vehicle information. The income account is sales of product income and the expense is Inventory purchase (expense account) quantity on hand is 0."

 

First, make sure you're not running your P&L report on cash basis.  If you run it on cash basis, it will expense the vehicle cost as of the date of the bill payment.  That's not proper for businesses that carry inventory. 

 

When you select '+Add new' on the bill, are you selecting an inventory product, not a non-inventory or service product?  When you select an inventory product, you have to choose three accounts: 1) the inventory asset account, 2) the income account, and 3) the expense account.  The expense account should be COGS, not Inventory Purchase (expense).  Also, you want to enter 0 as the initial quantity on had since you are entering the item on the bill.  Forgive me if you know this but inventory is expensed when sold, not when purchased so an 'Inventory Purchased' expense account is not correct.  You should be setting up an inventory product for each vehicle and running your P&L on accrual basis.  That will keep the cost of the vehicle in your inventory asset account until sold, at which point, it will move the cost out of inventory on your balance sheet and into COGS on your P&L.     

1 reply

Rainflurry
RainflurryAnswer
May 8, 2024

@Jax 12 

 

"Then when I purchase the vehicle, I start by creating a bill and in the item detail section I select add new and then is here I enter the vehicle information. The income account is sales of product income and the expense is Inventory purchase (expense account) quantity on hand is 0."

 

First, make sure you're not running your P&L report on cash basis.  If you run it on cash basis, it will expense the vehicle cost as of the date of the bill payment.  That's not proper for businesses that carry inventory. 

 

When you select '+Add new' on the bill, are you selecting an inventory product, not a non-inventory or service product?  When you select an inventory product, you have to choose three accounts: 1) the inventory asset account, 2) the income account, and 3) the expense account.  The expense account should be COGS, not Inventory Purchase (expense).  Also, you want to enter 0 as the initial quantity on had since you are entering the item on the bill.  Forgive me if you know this but inventory is expensed when sold, not when purchased so an 'Inventory Purchased' expense account is not correct.  You should be setting up an inventory product for each vehicle and running your P&L on accrual basis.  That will keep the cost of the vehicle in your inventory asset account until sold, at which point, it will move the cost out of inventory on your balance sheet and into COGS on your P&L.     

    J
    Jax 12Author
    May 10, 2024

    Thank you SO much for your response, I was seeking an answer for months! I was out of the office for a couple of days, sorry to respond so late. This all was extremely helpful. My accountant was having me run my P&L on a cash basis for taxes. So I was using that to base everything off of. I do select Inventory product and enter each purchase as their own every time, with a initial quantity at 0. Again, Thank You 

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