In our current QuickBooks integration, we map received Purchase Orders into a control account with the type Cost of Goods Sold. We're going to change this and map them to a new control account with the type Other Current Asset.
This article covers the following topics:
Why?
Using a Cost of Goods Sold account means the cost of these received items is posted straight onto your Profit & Loss (even though you haven't sold the items yet), and it isn't recorded on the balance sheet as an inventory value held by the business.
This can also make gross profit look lower than it actually is, as the Cost of Goods Sold is recorded before the actual sale of those items.
Benefit summary
- Cleaner cost separation
- More accurate gross profit
- Inventory valuation in QBO
- Easier reconciling
The Detail
- Received Purchase Orders will post to a new Cloud POS Purchase Orders Control Account with the type Other Current Asset. This works in exactly the same way as it does now — as a Purchase Order and a corresponding Bill, unless you've asked us to turn off automatic Bill creation — so nothing changes about how or when this happens, only which account it posts against. At no point does receiving stock touch your profit and loss; the cost sits on your balance sheet as an asset until it's released by a sale.
- We'll post transactions through to QuickBooks as we do currently, but we'll now also post a journal entry that moves the Cost of Goods Sold in that batch from the Other Current Asset account to a new Cloud POS COGS Control Account. This is worked out using your chosen costing method (Average Weighted Cost, or Last Cost if you use it), and any returns within the batch are netted off first — if returns outweigh sales in a batch, the entry simply reverses. The entry is dated to the batch close date and sent overnight as part of the existing scheduled data transfer, alongside your usual transactions and Purchase Orders.
- To help keep inventory valuations between Cloud POS and QuickBooks in line, we'll also post journal entries for other stock movements — committing a Stock Take, making a manual adjustment, or transferring stock out of your business entirely (for example, writing it off or returning it to a supplier) — making debit/credit postings against a new Cloud POS Inventory Adjustments Control Account. Moving stock between your own stores, or in and out of Offline Inventory, doesn't post anything, since neither changes the overall value your business holds.
All of your other QuickBooks control accounts — for sales, returns, tenders, gift certificates, deposits, pay-in/pay-out, tax, shipping and other fees — stay exactly as they are.
What do retailers need to do?
You can choose when you'd like to move onto this new approach — there's no deadline, and your existing setup will keep working exactly as it does now until you're ready. Some retailers may prefer to wait until the start of their next financial period, so the change lines up cleanly with their accounts.
When you're ready, get in touch with the Support Team, who'll handle the change for you.
Talk to your accountant first
This is an accounting change, not just a settings change. Moving from expensing stock as soon as it's received to holding it as an asset until it's sold affects both your profit and loss and your balance sheet. Talk to your accountant before asking us to make the switch — they may also want to agree how to handle the balance already sitting in your existing 'Purchase Orders Control Account', since we won't move that balance for you automatically.
