QuickBooks Manufacturing Tutorial
QuickBooks has a “Manufacturing & Wholesale” edition, but there is a definite lack of documentation on how to actually use QuickBooks in a manufacturing business. This posting is the first in a series that will give you some guidelines on how to best use QuickBooks in a manufacturing environment. I’ll start off with some basics, and work our way up through some more complicated scenarios.
If you click on the Manufacturing item in the menu bar you will find a list of manufacturing tutorial articles.
There are many ways to manage a manufacturing firm, there are many very different kinds of processes that can be called “manufacturing”. Some of my suggestions won’t fit every business – so feel free to tell me if you have a better approach for YOUR business!
Starting with the Basics
I have a mixture of subscribers to this blog, from brand new users to seasoned veterans. So I’ll start with some very basic points for the uninitiated.
Note that I’ll be discussing features in the US Premier and Enterprise editions. Some screen shots may vary from what you see, as there are variations from one year of QuickBooks to the next.
First off – if you are using Simple Start or Pro then much of this won’t apply to you. The inventory assembly item that we will be using is only found in Premier and Enterprise. In addition, Enterprise has features that relate to manufacturing that aren’t found in Premier. I’ll try to point that out when possible.
The basic process to get started with assembling items is:
- Create the inventory parts that are components of your assembly.
- Create the inventory assembly and assign it the parts you use.
- “Build” or assemble your inventory assemblies.
Create the Inventory Parts
The first step you need to take is to enable inventory management in your company file. This is not set up by default – and it can be confusing to new users because you will see the item list even if it is not enabled.
Select Edit from the main menu, then Preferences. Select the Items & Inventory option, then the Company Preferences tab. Put a check mark in the box by Inventory and purchase orders are active.
Now you can add your inventory parts to the item list. While in the item list press cntrl-N to add a new item.
There are several different kinds of items that you can add – we’ll work just with inventory part items now (discussions on how to use other item types will be in future articles).
For each material item that you use as a component in your assembly, add an inventory part. You can also create non-inventory parts for items that you don’t keep track of by count. Please note that I do not recommend that you enter an on hand value at the bottom of the screen at this time, unless you are starting up QuickBooks for the first time and you have taken a physical count of your inventory.
Create the Inventory Assemblies
After you have created all of your inventory part items, you can add an inventory assembly item for each manufactured item. The primary difference from an inventory part is that you can assign a component list, a bill of materials (or “BOM”). This is a list of all of the parts
In this example, to make one “WHAS” wheel assembly we need two SC-12 screws and one RORO-4 roller.
Build the Assemblies
Now that we have defined the parts and assemblies, we can build the assembly. From the Activities button at the bottom of the item list, click Build Assemblies. In the Build Assemblies dialog you will select the assembly to build and enter the number of this assembly that you want to build.
When you click either of the build buttons, the program will save this build (if possible, as discussed below). Two things happen now:
- QuickBooks will remove the quantity needed amount of each of the component items (I refer to this as consuming the items in a build).
- QuickBooks will increase the quantity of the inventory assembly item by the quantity to build.
Essentially we are moving the cost of the inventory part assets into the inventory assembly asset.
A few comments on what happens here:
- Note the maximum number you can build… value. QuickBooks won’t let you build an assembly if you don’t have enough parts on hand to build it, This value shows you how many you can build with the parts that you have.
- If you enter a quantity to build that is higher than that maximum number, QuickBooks will mark the “build” as Pending. This means that it hasn’t been built, it is waiting to be built. There are reports that list the pending builds.
- When you enter the quantity to build much of the information in this dialog will not be updated until you move the cursor to another field, such as the date or memo. This can be confusing at first. When you move the cursor off that field the qty needed is updated, and the pending stamp could be displayed.
The Date field is very important. This is the date that the build transaction takes place. The quantity on hand for the component parts is based on your inventory status as of this date. Sometimes people get frustrated – they look at an inventory report and it says you have enough, but this dialog says you don’t! The issue is usually the dates – if the report is dated after a PO is received, but your build is dated earlier, you might not have had those parts on this date. Adjust the date in either your report, or the build.
As you might expect, the same issue relates to the assemblies you build – they are only available on or after the build date, not before.
This has been a quick overview of how to work with an assembly item and to issue a build. We’ll go into more detail about how to structure the BOM, and use other item types, in the future.
To learn more about using QuickBooks in your manufacturing company, click on the Manufacturing tab in the menu bar.
Category: Manufacturing and Inventory, Working with QuickBooks
About the Author (Author Profile)
Charlie Russell is the founder of CCRSoftware. He's been involved with the small business software industry since the mid 70's, and remembers releasing his first commercial accounting software product when you had a one-floppy disk drive system, loading the program from one floppy and then replacing that with the other floppy to hold the data. He has a special interest in inventory and manufacturing software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor with additional certifications for QuickBooks Online and QuickBooks Enterprise. He also is a Xero Certified Partner. Visit his CCRSoftware web site for information about his QuickBooks add-on products. Charlie can be reached at charlie.russell@sleeter.com He is also the author of the California Wildflower Hikes blog and a regular blog contributor to the Intuit Inner Circle. Connect with Charlie at GoogleSubscribe
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Charlie, Thanks for sharing your knowledge. I have been a C.P.A. for many years and am now retired, but I have a company that imports goods, does some assembly (for which we utilize the assembly process in Quicbooks). We actually do a negative expense entry for the estimated add-on freight costs (that will occur later) at the time we receive the inventory so that it is valued at the delivered cost. Later, when we print some of the items, we do an assembly that includes the delivered cost and the cost of labor and printing materials that come out of expense. However, we would love to use standard cost, rather than actual cost. Is there any version of quickbooks that allows that?
Leo, for costing, your only options are average cost, of FIFO if you have Enterprise and the Advanced Inventory option. Or, looking at one of the maufacturing add-ons possibly.
Thanks Charlie for starting this discussion of how to use QuickBooks to track a simple assembly process. What you describe is termed “back-flushing” in the manufacturing world. The idea being that, in one fell swoop, you remove the components of the assembled item from stock and put the assembled item itself back into stock.
As you might imagine, there are all sorts of ramifications to this, some that QuickBooks can handle, some it cannot. For this reason, using QuickBooks stand-alone in a manufacturing environment is a matter of what you can get away with. If you want to build simple assemblies, then QuickBooks is most likely sufficient.
If you’re a manufacturer with multi-level bills of material, you have complex costing issues, you make custom modifications to a standard bill of material, or a myriad of other issues common to the manufacturing process, you’re well beyond the capabilities of QuickBooks.
Fortunately, there are a number of manufacturing add-ons available for QuickBooks. Each one has a feature-set that may make it a good fit – or a bad fit – for your needs. A Google search for the phrase “quickbooks manufacturing” or “manufacturing for quickbooks” should point you to some of the most popular solutions.
So, Dave, does MISys have a backflush feature?
I recently purchased QB 2013 Manufacturing and Wholesale. I haven’t installed it yet but an wondering if there is an option to save your files as an earlier verson? Our accountant doesn’t have the 2013 one yet.
Linda, no, you can’t save back to an older version. Accountants who work with QuickBooks should be enrolled in the ProAdvisor program, and then they would have the latest version of QuickBooks as a part of that program.
What kind of reports does quickbooks offer for completed “builds.” There is a nice report for pending builds, but I’m trying to track mfg productivty through a native report in quickbooks. Any suggestions?
Garret, I guess that depends on what exactly you are trying to get out of the system. To be honest, QuickBooks by itself doesn’t have a lot of support for manufacturing, and it is particularly short on manufacturing related reports. What are you looking for?
My wife and I started a small business, baking a single serving dessert. Meaning, 1 type of dessert with different flavors and different toppings and with different crusts. We purchased the Quickbooks 2013 Premier Manufacturing & Wholesale edition to keep up with our business and inventory. The problem I am having with the simple assemblies process is, I believe it is impractical to assemble just 1 small dessert and then Build the assemblies as the amount of the incredients in 1 small dessert are too small to calculate. So, I think I need to assemble a batch of the desserts, which range from 25 to 40 desserts depending on the recipe. And then show that many of desserts in inventory. I can then fill an order by creating an invoice or sales order, which would reduce the inventory.
Also, since some of the desserts have similar toppings and some have similar crusts, is it better to create subassembly items and make a nestedBOM, or should I make a flatBOM?
Can you give me or tell me where I can find a step by step process to do this?
Darrel, unfortunately, there isn’t one simple answer, as there are many variables.
QuickBooks doesn’t have a “yield” calculation. That is, if you build one assembly, you get one assembly – you can’t build one “batch” of an assembly and get multiple items out of that build. Your problem is very typical of batch/process manufacturing.
In a very general sense, in situations like yours I recommend that you create the assembly item for one “batch”. Make the BOM represent your recipe for a batch of product, not a cut down version of what it takes to make a single unit. If 5 lbs of flour (and other ingredients” makes a batch of 30 desserts, that is your BOM. Your “base unit” is a single batch. That generally manages your raw material inventory in the best manner.
Then you have several options – and the choice of what to use depends on your situation. You can create a higher level assembly that takes 1/30th of a “batch” to create a single unit. Unfortunately, you will get some rounding errors there, and this requires a second “build”. A better approach MIGHT be to do an inventory adjustment – decrease inventory of the batch by one “batch” and increase the inventory of a different item (the single unit) by 30. Gets away from rounding errors if you do it right, but is a bit more of a hassle to perform. Another alternative is to stick with one item, a batch – then sell 1/30th of a unit for a single dessert (using units of measure) – but again you get rounding errors in many situations.
I generally recommend the inventory adjustment approach if you are building batches but selling eaches, but it isn’t a given. If you don’t sell eaches, if you are building batches and then selling by batches, you don’t have to worry about this. Also, a consideration is “do you need inventory control of bulk components”? Do you really need to control the amount of flour you are using? In many cases you don’t need to do that, since the component is something that you are buying in bulk, is low cost per unit, is turning over quickly. And you have scrap and waste to figure in to this also (which QuickBooks also doesn’t take into account automatically).
I need to write an article on this – but I wish I had a really good answer. It just doesn’t work smoothly, particularly for a small business. Note that in my own company I have a BOM processing product, CCRQBOM, and I’ve been playing with a “yield” calculation there that would handle the inventory adjustment for you automatically, saving a bit of work (that isn’t in the public version of the product yet, it is still being tested in the field).
Good Morning,
I have a client that just installed QB Premier 2013. The installer did NOT set up as Manufacturing and Wholesale. How do I change that? Thanks,
Mike Skaff CPA
In older versions you would select “Help” then “Manage my license”, and then “Change to a different industry edition”. You don’t see that option if you have the Accountant edition (so most ProAdvisors aren’t familiar with it). I don’t have a non-Accountant 2013 product, so I can’t test to see if that option is still there.
Hi there,
I’ve been using the Build Assembly feature and notice that it fails to adjust the quantity for some of the components (inventory parts) of any given assembly. It does adjust some of the components, but not all.
What could be causing this?
I’m at a loss…
Your help is appreciated.
very best regards,
maria
Maria, I haven’t heard of that. I’d have to see the file to be able to see what might be going on. You may want to make a backup and do a “rebuild” of the file (it can take awhile if you have a large file), but that is just a shot in the dark
Dear Charlie,
Thank you for your blog. We have been using QB for manufacturing for over 4 years. We use CNC machines to manufacture our products. When I enter the “Build” I want to add the machine number in a field which will allow me to run a report. The report should include both the builds and which machine it was produced on. Is it possible to add a field in the screen “Build Assemblies” to add this machine number?
I have added the machine information to the sales/work order templates however it does not link to the builds. We manufacture many items and we have 7 of the same model machine. Any item may be run on any of these 7 machines.
Am I looking to track this in the wrong place?
Thank you kindly,
Christina
Christina, you can’t modify the “build assemblies” template to add custom fields like you can with sales forms. And there is no link between a sales transaction and a build transaction. There is a “memo” field in the build assembly and you can manually put info in there, to be used in searches, but that is about it.
You may want to take a look at some of the more sophisticated inventory systems that use QuickBooks for the financial side of things. I am not sure which of them would provide what you need, but you might start looking at MISys, ACCTivate and Fishbowl Inventory.
In creating assemblies in Quickbooks, one uses inventory parts. I understand that part.
What I do not understand is how to account for converting bulk raw matl into inventory.
We purchase bulk amount of a raw material (aluminum) and from that manufacture various inventory parts that will be used in assemblies. I am confused as to how to set of the item lists with COGS. We just purchased quickbooks and want to set it up correctly. (I am proficient in QB for nonprofits…this manufacturing part has me seeing double.)
Thank you.
Theresa, there are several ways that you can deal with this, but I can’t go into specifics because I would need to know a lot more about how you manage the business, and in particular how you are dealing with the bulk raw material.
If the raw material is an “inventory part”, then you can be buying aluminum by the pound, and then you would enter the number of pounds of aluminum you use in the assembly. If the raw material is a “non-inventory part” you can still use the item this way, but it has a very different way of flowing cost through the process.
You may want to read the other articles in the blog about this, such as:
http://www.sleeter.com/blog/2011/02/understanding-quickbooks-inventory-cost/
http://www.sleeter.com/blog/2011/02/understanding-quickbooks-total-bill-of-materials-cost/
http://www.sleeter.com/blog/2011/02/item-types-in-a-quickbooks-bill-of-materials/
Thank you. I was reading your ‘cheese’ posting and things started to gel a bit more. I think we will assign the raw material as an inventory part and determine a unit of measure. Because it is purchased in lengths (long bars) we might go by inch or foot. I am thinking that the multiple parts we create from this raw material would be a sub-assembly part to be used in the finished assembly build. Does that sound correct?
T.
Hard to say, Theresa – using subassemblies creates some additional work, but if you take the long bars, machine them into parts that you keep around for awhile (so they exist on the shelf), then it may be needed. If you always take the long bars and use the material from them in the final assembly, you might not need the subassembly. But there are a lot of issues, and it could go either way, depending on the details.
Greetings! I’m back with a follow-up question. When creating the BOM, can we, as the S-corp owners & actual manufacturers of the final milled product, include ‘labor’ in COGS? Or is this cost only valid if we hire an employee to do the task?
Thank you,
Theresa
Theresa, that is a question that you need to direct to a qualified accounting professional.
Charlie,
I am new to the inventory side of QuickBooks and I’m confused by the Pending Builds. I know I have the inventory parts needed for the builds and from your explanation above you indicated that changing the date of the build may solve the problem. What does it do to my inventory if the builds remain in pending status and/or how do I clear them from pending?
The business is fairly new and started using QuickBooks in September inventory tracking has been shoddy up to now. This weekend I did a physical inventory and would like to move forward with an accurate record but don’t want those old pending builds to screw it up again. Any advice would be greatly appreciated!
Sarah
A pending build is just a way to enter the info for a build, but to not have it actually issued. It is “on hold”, essentially. It doesn’t affect your financial statements, it doesn’t affect the quantity on hand. It might show the items in the Inventory Stock Status by Item report as being reserved for an assembly. To get rid of them, you can just find it in the build assemblies window and press ctrl-D to delete it.
Thank you so much for your help!
Is there an auto build feature, trick or 3rd party option? I deally Id like a sales or invoice order to trigger a build of an assembly.
Allie, no trick in QuickBooks other than using “Group” items instead of “Assembly” items. But, there are big differences there, see http://www.sleeter.com/blog/2011/02/groups-vs-assemblies/ for details.
For an add-on product there is one in the Intuit Marketplace for this, “Auto Build Assemblies” (http://marketplace.intuit.com/AppID-3145-Overview.aspx) – but I have NOT tried this so I cannot endorse it. I don’t know much about it. I do have some concerns about the concept, because I think that either you are losing control over your manufacturing process by doing this, OR you might be better off with Group items depending on what exactly you are making/shipping.
Good day Charlie,
I just wanted to ask if I used Inventory Assemblies to assemble the parts of an Item? Do the Inventory itself is less automatically?
I’m not sure if I understand your question, but what I think you are asking – yes, if you have an inventory assembly item, and you build that item (a “build” transaction in QuickBooks) then the component parts of that assembly are removed from inventory.
Thank you for that Charles
One more question, i want to avoid errors from my inventory parts, so can i use inventory assembly for the existing finished product? won’t it affect the previous inventory of the finish product?
Jewel, if I understand what you are asking – if you have an item that is an “inventory part”, you can change the “type” of the item to “inventory assembly”. That won’t harm anything or create any problems. It is OK to do that, and then moving forward you can assign it a bill of materials and use it in Build transactions.
Hi Charles, I want to re phrase my question. Can I convert an Item (Finish Product) to Inventory Assembly Item? Won’t it affect the Item’s (Finish Product) existing quantity?
Hi Charles, I am using quick books enterprise 12. I am doing accounting a manufacturing company, we have around 1000 products which are being manufactured and each product goes through around 14 process, which are done by external vendors as well as some process are done in house.
To produce one product WIP takes around one month to complete. Build assembly is not solving my problem, I want a step wise process costing and billing. what should i do?
Ahmed, that is a very general question, one that I can’t really answer here. I would need to know a lot more detail about what you want to do, what you are building, and more.
There are other articles here about QuickBooks manufacturing – for example: http://www.sleeter.com/blog/2011/03/outsourced-or-sub-contract-work-in-quickbooks/
Charles,
I am trying to create an assembly that includes another assembly, or sub-assembly. For some reason, the sub-assembly will cost out as zero. What do I need to do to get it to cost properly? I have tried it with several of our other assemblies, even ones with stock already available, but it still has 0 for the cost. Any thoughts? Thanks!
Staci, the “cost” field of an assembly item is never updated by QuickBooks (other than when you first create the item). The “avg cost” will be updated based on the average cost of the components, when you build it.
Take a look at this article on the subject: http://www.sleeter.com/blog/2011/02/understanding-quickbooks-total-bill-of-materials-cost/
Note that you can “roll up” the “cost” field in multiple level assemblies using an add-on product, CCRQBOM (http://www.ccrsoftware.com/CCRQBOM/CCRQBOM.htm )
Hi Charlie,
Help! I am seriously struggling with setting up our QB info. We quote for a completed solar racking system, say XYZ system sale price $100. We order parts from vendors that get directly drop shipped to customer, as well as bulk items that a third party warehouse receives for us and subsequently ships to customer as required. Customer places PO to us for % of our system as they needed it. So i get PO for say $50 worth of completed system. I immediately order non-inventory drop ship parts from vendors and instruct warehouse to ship inventory part to the customer. My invoice states just one item, say Completed System X and is for $50 which hits the Income account. How do i correctly pull the inventory out into cogs and also non-inventory drop ship stuff into COGS? is there a linked way to do it ? so far i have to manually do invoice for Completed System X, vendors bills and not even sure what to do with inventory items.
thanks very much for any advice. Olga
Olga, it is difficult to give detailed assistance through a blog post like this. If you contact me I can refer you to some people who would gladly be able to work through this with you. There are a number of issues to deal with, and some questions about how you are handling the items at the third party warehouse.
In a very general way, you can consider looking at either Group items, or possibly Assembly items. It does depend on how you are handling the parts that you have at the other locations. You might also take a look at this article: http://www.sleeter.com/blog/2011/03/outsourced-or-sub-contract-work-in-quickbooks/, and possibly http://www.sleeter.com/blog/2011/02/manufacturing-wip-in-quickbooks/
Hi Charlie,
Thanks for the post. Over the past 9 months, our balance sheet has occasionally not balanced at month end. The first time it happened, we went into panic mode, purchased a new server, rebuilt our database from scratch… It continues to happen. The difference is always in inventory valuation and I think I have narrowed it down to pending builds and average item cost. Scenario: I enter pending builds to plan my assembly for the next 2 weeks (the items may or may not be in stock, I am just using this as a planning/scheduling tool). As you suggest above, QB puts this build “on hold”. Between the time the build is marked pending and the time the build is “posted”, I may receive new bulk materials, which often times will change the average cost of the bulk materials used in the build. Could QB be holding the inventory value based on the date that the build was marked pending, and since the stock was present at the time, using this “old average cost” when the build is posted? Thanks, Brian
Brian, I can’t diagnose your file without having hands on. When you say “not balanced”, do you mean that assets don’t match liabilities & equity? Or that it doesn’t balance out inventory assets with the total inventory valuation?
Pending builds, when they are pending, won’t affect the balance sheet. They are non-posting transactions.
When you convert a pending build to a “real” build, the date of the build transaction is a key value. The costs involved with the build are going to be calculated as of the date of the build. So if you leave the date alone, the cost of the assembly is updated based on that original date.
But, that shouldn’t make a balance sheet out of balance internally. And if the balance sheet date and inventory valuation report date are the same, if they aren’t in balance that is due to some other issue. This situation can be investigated by a knowledgeable QuickBooks accounting professional.
Hi Charlie,
My company manufactures bottled mineral water and uses raw materials to produce the bottle. Can I use quick books pro to manage my accounts? Do i need the inventory assembly function to be able to track the material?
thanks , Jena
With Pro, you have to enter an inventory adjustment to consume the raw materials, and another inventory adjustment to add the manufactured item, and you have to do the calculations of the quantities manually. But you can do it.
With Premier and assembly items you just enter one “build” transaction and all the adjustments and calculations are done for you.
It’s up to you – without knowing the volume of transactions and number of assembled items you are working with I can’t predict how much time you will save, but in general I find that people will save a lot of hassle and time by using inventory assembly items.