How to Set Up Opening Inventory in QBO

Hello. In today's video I am going to show you how to enter inventory opening balances. And one of my more popular videos relates to how to enter opening balances when you're transitioning over from another accounting software or if you were using a spreadsheet in the past. However, in that video I don't really show you how to itemize your inventory. A subscriber of this channel asked me how to do that, so I thought in response I would make this video. My name is Ronica Canna. I'm a cpa, a CFA, and the founder of Montreal Financial, where you can find lots of resources relating to your small business. And I encourage you to sign up for my newsletter. So let's start by looking at the journal entry that we made in my video on opening balances. And I will leave a link to that video in the description. Okay, so first of all, you'll see here I added this, the inventory asset of $1200. And then this should agree to your trial balance. So basically they balance. There should not be an entry to opening balance equity. And accountants hate opening balance equity. That balance should almost always be zero and should only be used exceptionally and usually by an accountant. Okay, so now, but you'll see I have just put $1200 to the inventory asset account, but it doesn't really give me the breakdown. And there is no way in this journal entry format that we're using to itemize the inventory. So what you have to do is to use another process where you would go to your products and services, which are over here under lists. And this is where your inventory, all of your individual inventory items can be entered. Once you do that, you are going to create your products and services that agree to your inventory opening balance list. Now, for simplicity, I'm only going to show you how to enter two, but you could have way more. And I'm just going to do this manually for now. And I'm not going to really show you how to import inventory. That's the subject of another video. And if you really want to see that, please let me know in the comments and I will try to make that. I will show you, however, where you can import your inventory. I and you can do that by going to new. You can click on batch import and then you can actually copy and paste all of your inventories directly from your spreadsheet. So if I go over here, for example, I can just copy this over to here and you'll see the items on my list show up. You can just it really Takes the work out of entering each one manually. And then you would enter the amounts in the relevant fields over here. So that is one way. The other way of importing your inventory list, if it's long, is to click on this import CSV Excel. Yes. And then download the sample CSV and make sure you enter all of your inventory to adhere to this format in which you have to upload. Once you do that in a CSV file, you would simply upload your CSV file and then hopefully it imports everything. Okay, so I'm going to close this and as mentioned, we are going to enter the inventory amounts manually because I really want to show you what fields you need and then what happens when. Because there is a next step after this, which is a journal entry. Okay, so let's click on new. We're going to click on inventory item. And the name of the inventory item, as we just saw was Homes audio Recorder. This is a Sherlock Holmes detective agency. So we're putting that in. And now the, the section that you really have to pay attention to is this one over here. So we're going to say we had 10 of these as of January 1, 2025. Reorder point. You could put this in or not. I wouldn't worry about this. You can always go back and edit it. The inventory account, it automatically defaults to the inventory asset account. This is fine unless you have another account. Then you would enter that. The other thing that you want to make sure that you put in, you could enter all of this other information. This is what will populate on your invoices and your bills. But for now what's really important is to put in the income account. Again, this defaulted to product sales. But if you have another account, it could be sales of microphones, it could be whatever you want. You can actually simply create a new account. From here. You determine if you want to put the sales tax code. It'll default to this. All of this can be changed later. And similarly, you want to make sure that you enter an expense account and you can enter all of the other information here. So what we have now, which is essential from an inventory opening balance perspective, is to have the name of the item, the as of date, the inventory asset account, the initial quantity on hand and the purchase cost. And this purchase cost is going to be your average cost because remember, the quantity on hand is going to be multiplied by the purchase cost. And in this case we're going to put $60, because I have $6600 worth of inventory of this item. So I'm taking the average purchase cost of $60 and then I am going to click on save and close.

Now once I do that, you'll see it has entered it over here Homes audio recorder. And then what I'm going to do is I'm going to go to my balance sheet. So I'll go to standard reports. I'll go to balance sheet. And now when I click on inventory asset.

You'Ll see that I have, I'm clicking on all dates here. You'll see that I have $600 but this is already part of this $1200. Right. And so that means I have duplication in here. Another thing I want to show you is over here I have opening balance equity of $610. The $10 obviously relates to something else. But when I click on that, you can see that the $600 got automatically entered by QuickBooks which when I enter the initial opening balance. So I need to fix this. Before doing that, I want to make sure that this equals the twelve hundred dollars that we have in inventory. So you can see that it and it should match exactly to the amount of the journal entry. It's really important that every item in inventory is itemized in this product and services list. So I'm going to click on inventory again. I am simply going to add another inventory item and then I'm going to enter the same information. So we'll say we have 20. The date, remember is January 1, 2025.

And the inventory asset account is this. That's fine. Product sales. That's good. Cost of goods sold. Again, these are, you'll see the little star here. These are essential. And the other thing that's very important that I enter is the purchase cost. So in this example I only have two items in inventory and the total of those two items should add up to the $1,200 that we have in the inventory asset account. So I'm going to save and close this.

So now I'm going to go back to my balance sheet.

And when we look here you'll see my inventory asset amount increased and my opening balance equity amount also increased. So we have 3942 here.

But we have 1200 which is basically a duplication of the 600 and the 600. So I need to get now get rid of this. The way to get rid of this twelve hundred dollars once I've entered the individual inventory items is simply via a journal entry. So I'm simply going to enter a journal entry. So I'll click on journal entry by going to plus new make sure the date is the same date as the inventory opening balance entry. Here I am going to credit the inventory asset account.

And I am going to.

Enter a description of to reverse inventory opening balance. And I'm crediting inventory asset because I'm reducing the amount of the asset by the duplicate entry that we made to opening balance. The other side of the entry, as I showed you, is our opening balance equity. This is going to bring it back to zero or $10 because there is $10 from something else and that's pretty much it. You can make this description whatever you want. It could be as long as you want. If you need it to be a little more descriptive, save and close. And now when I go to my inventory asset account, click on it. Click on all dates. You can see that this inventory balance is in and out, but it has been replaced by 600 and 600 which equals the 1200. And if we go to the opening balance equity account we're back to ten dollars. And that other twelve hundred dollars has been offset against the entry that QuickBooks Online made automatically.

So I hope this was clear. If you have any questions, if anything is unclear, please leave a comment and I will try my best to answer it. And please like and subscribe. Have a great day.