For those manufacturers using QuickBooks Online (QBO), one of their major headaches is properly accounting for the cost of goods manufactured. This differs from purchasing and selling items, because here you use raw materials, apply labour, and incur overhead costs to manufacture something. Using journal entries for this process is not only time-consuming but leaves too much room for mistakes.
The x2x Lite Manufacturing software solves this problem through automation, taking care of the necessary financial translation of the shop-floor work. But how does it record the cost of production in QuickBooks Online without turning everything into a mess in terms of accounting? It all depends on Clearing Accounts and synchronization.
The Engine: The Clearing Account
In the heart of the posting cycle is the Clearing Account. You set up the Clearing Account in the x2x Configuration screen. Rather than posting to just any expense account, x2x uses this account as a holding place for costs that pertain to manufacturing.
During manufacturing, all the costs associated with building the product are calculated, material, labour, and overhead and they’re all posted to the Clearing Account. This makes sure that both the WIP and the Inventory Asset accounts get credited with accurate amounts. The clever thing about using the Clearing Account is that it automatically balances itself. Once the production is complete and the product goes to inventory, the account balances out to zero.
Workflow: Creating the Transaction Entry up until Posting
The first step in this process takes place when you make your production order final in the Create Production section. Through BOM information, x2x can know the exact amount required to buy the parts used. On completion of production, x2x Lite Manufacturing makes all expense entries and sends the transaction to QuickBooks Online.
For all postings to succeed, the use of the Default Vendor set in the preferences is mandatory. This is because any posting to QuickBooks must be made from a vendor account and that’s why the default vendor is entered.
Two-Way Visibility: Retrieval and Validation
One thing to clear up right away is the belief that x2x just “pushes” data into oblivion. In fact, it keeps an extremely strict cycle of feedback going. After x2x pushes the expenses into QuickBooks, then the QuickBooks Posting component of x2x pulls them back out from QBO.
This process is vital for validation purposes. When you visit the Expenses screen on x2x, you won’t be viewing a replica of your data but rather will be viewing it as it appears in QuickBooks. That means you’ll have access to information about the document number, date of the transaction, items, and total amount.
Verification through Reconciliation for Precision
Reconciliation is still a good practice despite the use of automation. The x2x Lite Manufacturing package incorporates an Account Reconciliation tool that allows comparison of the production cost value directly between x2x and QuickBooks Online. You can easily tell if there is any discrepancy using the filtering process for the record fetch.
Through the Clearing Account approach combined with a perfect integration with QuickBooks, x2x Lite Manufacturing makes production accounting easy for you. It ensures that any finished product that comes into your inventory always brings along the required accounting data.
