This past September we had an internal training on using QuickBooks Online (“QBO”) as a standard cost inventory system. As you may already know, QBO is an average cost system for Inventory tracking. While that might be an acceptable tool at the very beginning of a client’s accounting for inventory and cost of goods sold, the use of standard cost methodology is a powerful “best practice”. With standard costing, a client can know
What is included in their manufacturing costs
What the drivers are for controlling their key manufacturing costs
What steps are necessary to control their manufacturing process and measure performance
There are very few affordable options for managing inventory tracking as a standard cost system available to start-up companies. This is why we made it a priority to find a workable and affordable solution for our clients. As a result, we have found a way to use QBO via certain work-arounds to allow for standard cost tracking within an existing QBO instance.
Before we delved into using QBO for standard costing we reviewed certain key elements in inventory accounting, such as:
What are the essential building blocks in inventory accounting
What are the different types of variances that would be meaningful to the client’s operations.
How would these variances be calculated and explained.
We reviewed how to calculate the standard cost of a bill of materials and how to build and record work orders in an inventory accounting system.
Then we covered key elements in using QBO as a standard cost system as follows:
- Use of certain QBO features that ensure that the inventory valuation reports tie out to the balance sheet
- The use of inventory product codes
- How to update the standard cost of an inventory part
- When and how to record adjustments to inventory.
- How to determine when to record periodic standard cost updates
We also covered ways you can build out a work order inside QBO depleting raw materials (similar to “backflushing”) and increasing the finished goods value.
These techniques to use QBO as a standard cost system are an affordable way to track and manage inventory, making this a powerful tool for our manufacturing clients.