QuickBooks has certainly proven itself as the financial system for all those small and medium enterprises. With QuickBooks, the tasks of invoices, payroll, payables, and reconciliation are done with ease. But if your enterprise creates something or builds an assembly of goods, you would have surely come across the one limitation that makes using QuickBooks such a pain in the neck. QuickBooks is basically designed for those enterprises which purchase and sell something. It simply does not have any built-in capability to manage the inventory used in production process.
The Inventory Disconnect
To understand why this is an issue, one needs only consider how QuickBooks deals with the inventory process. Purchases of materials lead to an increase in inventory assets. Sales of finished products lead to a decrease in inventory assets and an addition to Cost of Goods Sold (COGS). What about the manufacturing process? In other words, when your employees cut, weld, or assemble the materials, what do you do in QuickBooks? Nothing, QuickBooks has absolutely no way of knowing that the materials are being used up and have now moved off the shelf. Your balance sheet will continually show a vastly overstated value of your raw materials.
The Symptoms of Missing Consumption Information
In the absence of automatic monitoring of inventory consumption, manufacturing firms are left in a chain of cumbersome workarounds. The one that comes out tops is the dreaded end-of-month manual journal entry. The accountant pulls a physical production report and then manually makes an entry that debits the Work in Process account and credits Raw Materials. The problem is that this manual approach is highly susceptible to errors and is completely retrospective in nature. Since the information is already weeks old, there is no way for the firm to measure the profitability of jobs on a current basis. In addition, without consumption tracking, purchasing becomes guesswork.
What a True Inventory Consumption Tracking is Achieved
True inventory consumption tracking links the purchasing process with the sales process. It begins with a Bill of Materials (BOM) that is linked to a live work order. As manufacturing proceeds, the system automatically consumes the specified number of raw materials from the Bill of Materials. The financial value of such consumed raw materials is transferred from Raw Materials account to WIP account. When the manufacture is complete, its value is transferred from WIP to Finished Goods. In this way, there will be a continuous trail of exactly where your inventory value is always.
Closing the Gap with QuickBooks
The best part about solving this issue is that it does not involve leaving behind QuickBooks and replacing it with some cumbersome, expensive, and difficult-to-learn enterprise-grade ERP software. All you need to do is use QuickBooks with a lite weight manufacturing add-on that can take care of the shop floor specific processes that QuickBooks simply cannot. The specialized software will take care of the work orders, BOM’s, and inventory consumption, and then automatically push the data into QuickBooks in a way that matches its requirements without requiring any manual entries at all.
Conclusion
The tracking of inventory consumption is the missing piece in QuickBooks when it comes to manufacturing businesses. Once the connection between the shop floor processes and accounting has been made, the issues caused by inaccurate bookkeeping are completely solved. Stop making QuickBooks play the role of a manufacturing-specific accounting software. Invest in the missing piece and see the difference yourself.
