The information below summarizes the journal entries created in QuickBooks when exporting purchase order receipts, vendor bills, customer invoices, inventory items and during the Update Inventory reconciliation process.
Exporting PO Receipts
The purchase order receipt transaction entered in Catalyst can be exported to QuickBooks to update Accounts Payable prior to the receipt of the vendor invoice. When exported, the purchase order receipt is created as an item receipt in QuickBooks. The journal entry credits Accounts Payable and debits the Inventory account for the item.
Exporting Vendor Bills
A vendor bill is created in QuickBooks with the export of a vendor invoice from Catalyst. When a vendor bill is created in QuickBooks, Accounts Payable is credited and the inventory account for the item is debited. If an item receipt has been applied to the invoice, it is replaced by the vendor bill. The QuickBooks vendor bill 'Date' is based on the date the vendor invoice was entered into Catalyst. The QuickBooks 'Bill Due' date is based on the invoice due date entered in Catalyst. When selecting the Pay Bills menu option in QuickBooks, the 'Date Due' refers to the 'Bill Due' date on the vendor bill.
Exporting Customer Invoices
When a customer invoice is created in QuickBooks, two journal entries are created, 1) a credit to the income/revenue account for the item and debit to Accounts Receivable and 2) a credit to the inventory account for the item and debit to Cost of Goods Sold (COGS). The COGS entry occurs as long as there is an average cost for the item. The debit to COGS represents the fully absorbed cost of the parent item because the average cost of a parent item in Catalyst includes the material, labor, and overhead costs of all levels in the bill-of-material.
Beginning with version 5.02, there are no journal entries posted in QuickBooks when a new item is exported from Catalyst. The on-hand quantity is adjusted to match Catalyst, but the average cost for the item and thus total value of inventory for the item is set to zero to prevent QuickBooks from automatically posting a credit to the Opening Balance Equity account when it debits inventory. After exporting items to QuickBooks, the inventory value in QuickBooks can be updated using the Update Inventory function as described in the next section.
For existing items, Catalyst adjusts the inventory quantity and value in QuickBooks to match Catalyst and posts the difference in value to the adjustment account assigned to the item. The general ledger account used for the inventory adjustment is the adjustment account assigned to the item’s product class in Catalyst. The adjustment account should not be assigned to a cost of goods sold account as this will lead to an overstatement of cost of goods. As always, please consult with your accounting advisor to determine the most appropriate policies and practices for your company.
An inventory adjustment typically consists of both a quantity and value adjustment in QuickBooks to adjust both the quantity on-hand and the average cost for an item. To perform only quantity adjustments without updating the current average cost stored in QuickBooks, a company can select the ‘Update quantity only’ option on the QuickBooks page of the Company Master. This option updates the quantity on-hand, but preserves the current average cost maintained in QuickBooks.
If the inventory quantities and/or average values in Catalyst are not well maintained, an effort should be undertaken to improve the accuracy prior to updating QuickBooks with that data. Improving the integrity of the data in Catalyst will help preserve the integrity of your QuickBooks data. If there is a desire to keep the two inventory systems separate, there are a few strategies that could be used to achieve that end, namely:
- change the QuickBooks Inventory setting to 'Update quantity only' as described above. This setting causes all inventory adjustments to be posted as quantity only instead of quantity and value for any differences in inventory between the two systems.
- Setup a subaccount for each of your inventory accounts and specify the subaccount as the inventory adjustment account for each product class. This will isolate the adjusting entry to the inventory account and allow you to reconcile those accounts prior to making a period end adjustment.
- Perform manual inventory adjustments in QuickBooks at period close by comparing the inventory valuation reports in Catalyst and QuickBooks and entering the necessary journal entries in QuickBooks to match Catalyst. Catalyst captures all receipt, issue, adjustment, and shipment transactions so the Ending Inventory in QuickBooks for each inventory asset class needs to be adjusted at period end to reflect the increase or decrease that occurred during the period (using the equation Ending Inventory = Beginning Inventory + purchase order/shop receipts – material issues, adjustments, and shipments).
In general, the more frequently the Inventory Update tool is run, the more adjusting entries in QuickBooks that will be created. Using one or more the strategies above will help make the reconciliation process more manageable.