Yes Samantha you can do FIFO ( or LIFO – Last In First Out) in QuickBooks.
FIFO means First In First Out, what you bought first you sell first, that way the cost of items on hand is the most current cost and generally speaking profit is higher since the oldest (lower usually) cost is used.
LIFO means Last In First Out, what you bought last is what you sell first, that way the cost of items on hand is the oldest, and generally speaking profit is lower since the newest (higher usually) cost is used.
QuickBooks is not, repeat not set up to do FIFO or LIFO, so what I am going to propose is a work around. It complies with accounting procedures but it is extra work. And unless you train someone new, they will mess the books up if they do not follow the workaround procedures. And people on the QB forums will have no idea what you are doing.
You can apply this work around to all or to just a few of your inventory items, applying it to only a few will require more attention to detail, or as my Dad used to say the 7P’s (Precise Prior Planning Prevents Piss Poor Performance).
A recap of sorts:
* Inventory items hold their value and QB calculates an average cost.
* NON-Inventory items do not hold a value, the cost to purchase is sent to the expense account you selected on the item screen immediately.
* Inventory items hold the quantity on hand,
* NON-inventory items do not hold a qty on hand (stock).
This applies to all items you want to track as FIFO (if doing LIFO then change the initials of course):
1. Set up the item as a NON-inventory item, select the expense account COGS. (if you are going to only track some of your items as FIFO, I would suggest making a sub-COGS account called COGS-FIFO and select that account on this NON-inventory item).
2. Set up the same item as an inventory item, select the COGS account and the sales account. DO NOT enter a total cost when setting up the item, but you can enter the quantity on hand if you want.
Since QB does not allow for duplicate names I suggest naming one of the items with the
Purchasing FIFO items – Purchase this item as you would any other item, BUT when you purchase use the NON-inventory item.
* After you purchase the NON-inventory item, bring up inventory adjust and increase the inventory item (name-FIFO) by the quantity purchased. Since the inventory item has never been purchased there is no cost to worry about, remember the cost went to COGS-FIFO when you purchased the NON-inventory item.
Selling FIFO items – Sell this item as you would any other item BUT when you sell use the Inventory item. There is no cost so nothing happens to COGS and the sale goes to the income account you specified on the item screen.
If you just pull a P&L statement the net profit will be understated (lower than it should be). That is because the full amount of the NON-inventory items is sitting in COGS-FIFO. So to get a correct P&L you have to do an inventory.
One you have the inventory (of FIFO items) you have to calculate the cost of what is on hand for the FIFO items.
Go to reports>Purchases>By Item Detail, then set the date for this Fiscal year to date.
I suggest modifying and then memorizing this report as follows:
* Click the Modify Report button.
* On the Display Tab – remove the check marks from the column headings you don’t need: On mine I dropped: Num, Source Name, and Memo.
* On the Filters Tab – click Item in the left list, then in the drop down box select Multiple Items. That brings up an item list, scroll down until you find the NON-inventory FIFO items and put a check mark next to each one (that will limit the report to the items you need ).
* On the Header/Footer Tab – Click in the Report Title field and title this something like FIFO only.
* Click OK
Now the report only lists all purchases of NON-inventory items for the current fiscal year. Memorize the report.
This report shows the cost per item for each purchase, take your physical inventory list and do the calculations to find the cost of what is on hand. Use the cost from the most RECENT purchase or purchases if you are doing FIFO, if you are doing LIFO then use the cost of the oldest purchases.
Bring up the General Journal (Menu Company>Make General Journal Entries) and:
* Credit COGS-FIFO for the amount you calculated.
* Debit Inventory Asset for the amount you calculated.
Now run the P&L and it will be right. What this did was move the cost of what is on hand to the asset account where it should be.
If you did this during the fiscal year so you can get an accurate P&L then you need to reverse the entries and continue business. Reverse the entries using the same date by doing another General Journal entry:
* Debit COGS-FIFO for the amount you calculated.
* Credit Inventory Asset for the amount you calculated.
If you did this at the end of the fiscal year then the reversing entry should be dated for the first day of the new year.