Skip to main content

Understanding Inventory & Equity

Lesson 14 from: Bookkeeping for Crafters

Lauren Venell

Understanding Inventory & Equity

Lesson 14 from: Bookkeeping for Crafters

Lauren Venell

buy this class

$00

$00
Sale Ends Soon!

starting under

$13/month*

Unlock this classplus 2200+ more >

Lesson Info

14. Understanding Inventory & Equity

Lesson Info

Understanding Inventory & Equity

Um and then last but not least make any updates to inventory and or equity um inventory in equity like I mentioned before they don't affect your profitability I mean they don't affect your profit um inventory only effects your inventory equity only effects your cash ah but you have a sheet where you can keep track of how many items you have left in stock the value of all the inventory that you sold up to that data that you did last year and when you do your taxes at the end of the year you will need to know what you're starting inventory wass the value of it and the value of uh the ending inventory because you only get taxed on what um wherever you can only deduct what you've sold so uh you need to know and this is for all of your products together you need to know the value of all of the different products you had at the start of two thousand five january first I mean twenty fifteen twenty, fifteen um the value of all of your inventory all your products together and then what the valu...

e was december thirty first twenty fifteen um or in this case if you're doing your twenty fifteen taxes you're twenty fourteen inventory um that's why it's so good to be taking this class now because you can start doing all of this stuff right now I mean I know it's halfway through the month of january. But it's probably pretty easy to track what your value was two weeks ago, as opposed to, like, ten months ago. Um, so that's really nice. Um, the inventory and equity stuff, uh, in your ledger is just something for you to update manually. I can't really put equations into the ledger for that, other than calculating the total value, because I have no idea what products you carry in your inventory. You're gonna have to fill that in yourself. Um, but if you were to use bookkeeping software like quickbooks or stitch labs or something like that, it will update the inventory for you as you sell stuff. So that's kind of nice. Um and that may be a direction you want to graduate to once you've really gotten a handle on what's in the spreadsheet and how that all works. So any remaining questions about the income process? Yes. So my question is, I mean, you said it a little bit. You set like when you were doing retell, you would do it like once a week, and then you graduated to kind of once a month when cutting your business change. But is there any kind of like, especially as people who are just first starting to do this? This is something like we should dedicate two hours every morning just or whatever part of our day, so, like just get in the habit of doing it and eventually win our way down, or I don't think you need to do it every day, any business needs to do it every day, unless you were the kind of business that's so big that you hired a professional, full time bookkeeper, in which case they're coming in every day just to do that right that's their whole job um, once a week should be totally fine if you're just starting out and also, uh, if you're doing retail, if you're selling a lot of products, especially was a lot of different products and you have a lot of moving pieces that you're tracking, you don't really want to let it get to the end of the month because then it starts to feel really overwhelming, you know? You just sit down there's this huge pile in, you're like it's going to take me you know, five hours to do this and then in your head you're like, when am I gonna have five hours to set aside to do this and then you put it off and you put it off and put it off but if it only takes you forty five minutes if you do it every week it's really easy to find the spot to slot that into and that's sort of the sweet spot for me is about I don't know I'd say less than two hours if I'm spending more than two hours on it at a stretch, I'm kind of like that's it I'm done I don't want to do this anymore, eh? So when I was selling retail, I definitely had to do it every week me to keep it under two hours because I had to track every button that I was selling I mean, I was selling a lot of things that were little tiny fiddly products I had buttons that cost a dollar these little charms that cost a dollar and like, you know, if you're selling a one, I probably should have been doing this but whatever, um if you're selling, you know one one dollars button or one one dollars charm too you know, whatever marla in el sory toto, then I'm making like my seventy cents seventy five cent profit off of the button that I spent twenty five cents on that is no, uh selling for a dollar um and maybe a little bit on the handling part of shipping and handling but then I have to spend all of this time entering in okay, I sold one button it was for a dollar it cost me twenty five cents. I shipped it to this county at this tax rate and like, this was the tax part of that this was the shipping part of that, like it took forever to enter in a one one dollar retail transaction. Um, so eventually I stopped doing that. Uh, but you know, if that's the kind of stuff that you do and they're plenty of businesses that sell one dollar items too, you know, in singles to people all over the place um, you know, then you do need to take the time to enter that stuff in and you don't want it to become five hours of buttons to marla in el sereno you'd like to keep that maybe to forty five minutes and then you don't go crazy it's personal preference um, you know, if you want to do it every other morning for, like, ten minutes fine, go for it, um if that's what works for you and your work flow in your life fantastic um I'd say around an hour is kind of the sweet spot for me personally and for a lot of other folks I know um luckily since I do mostly wholesale now and very little retail I can keep my bookkeeping to an hour a month retail is way harder because it's farm or individual transactions um and it includes fiddly stuff like sales tax wholesale no sales tax so um yeah I'd say that's about where it is for me but it boils down to whatever you're comfortable with here location about inventory that people have been confused about a sparrow flies saying do you make a pre business in inventory before you officially start your business just should should therefore include products sorry materials as well as products okay, so we're gonna it's a good question we're gonna look at the inventory sheet in the ledger um you can start your inventory whenever you start keeping your records whenever you start your bookkeeping um if you have been in business for a while and you've had inventory for awhile but you haven't had a ledger for a while you could just put in the starting value today you know um january fifteenth you could put your starting inventory for january fifteenth um the starting value of your inventory figure figure it out and then at the end of the year you'll put with the ending inventory is so the cost of your inventory um is whatever it costs you to make the thing uh in terms of material stuff that you've purchased so for that tiny ham um my inventory cost would be you know, uh the fabric the button, the thread whatever per piece so if I could make three hams with a yard of fabric the cost for a ham is a third of a yard of fabric plus one button plus three yards of threat or whatever it is um so you will have to break the cost down by peace but you're going to need to do that anyway in order to find out what uh the profitability is of each product so that's your cost is pulling out all of those materials again you're not goingto include the cost of your own labor as as an expense as part of your cost of goods sold because that's basically your equity what you're putting into it it should be part of your price so that you can pay yourself that money at some point so that you can take that owners draw back out and use it to pay your personal bills but unfortunately your own time and efforts do not get calculated as part of your inventory cost um so that would be your cost um and then your value is however many pieces of that thing you've got if you've got twenty hams and they cost three dollars and fifty cents then you've got whatever it is seventy dollars worth of hams in your inventory um and that's how you would track that I hope that answers um that question it can get a little bit fiddly because I know that a lot of people will buy stuff in bulk and then use little pieces of it but it really is worth calculating just one time to figure out like what everything is costing on a per piece level. Um okay uh, one little note about the ledger which, um we're gonna pull up next well actually gonna go through the expenses no now let's go through the income and then we'll pull up the ledger let's pull the leisure and then we'll go back and do expenses. Um, one note about the ledger uh is that it currently has dollar symbols for everything. Um but you can change is to be whatever currency symbol it is ah, in your country it's just arbitrary. I've set it up because most of our viewers are from the u s in canada they have dollars too. So okay, but uh you can set it up to be totally different. Um part of the bonus materials are these two ledgers again there's the simple ledger for people who like pen and paper and then there is the fancy ledger for people who like equations to do everything for them um my preference but you have to be comfortable using spread sheets in case you do something weird and you got to fix it um and you guys should all have printouts of the ledger I have put in some sample transactions to my ledger for twenty four fourteen I no longer have this business of these air actually closer to transactions I head in two thousand nine but that's fine this is all for learning purposes um on the ledgers that I've put together that are part of the bonus materials you'll see that for things like income detailed expense detail twenty fourteen um I have put in the's sample transactions just you can get an idea of how I've entered stuff in um all of the twenty fifteen sheets um going forward are blank so that they're ready for you to fill in you don't have to delete anything you don't to move anything around um but I thought it would be nice tohave some stuff already in here um so that you can take a look at what it looks like when it's actually in the ledger um so uh you said you's yet you have some receipts that you'd like to share do you have any for income or only for for expenses only says that's fine I brought I brought things don't worry I came prepared um so which one of these should I use some of these are really great um so I have for example a little uh sales receipt from craft show uh where I sold something outright with the credit card they customer paid with a credit card um and it was paid for right then and there so to enter this in the first thing I would do does anybody remember her what's the first thing I enter yes the date a date uh so the date on this um we'll pretend that it's january since that's what I have up here we'll pretend that it was uh january twenty second that I sold that small ham I sold it this is a small ham I sold it for twenty five dollars I sold one of them so that automatically puts in a total of twenty five dollars because it multiplied the quantity by the price. So this is an example of one of those spreadsheet formulas you asked about um so in some boxes where you enter in numbers yourself you will just see the number twenty five and one so we've put in the date and that it's a small ham we've put in the price the selling price not the cost that's for inventory but the price we actually sold it because this is income what did we get for it? Uh twenty five dollars for one uh the subtitle I was twenty five dollars and now here's the tricky part on this receipt I said that tax was included I didn't charge the customer separate sales tax but I sold it here in california I sold it in san mateo county I think the tax rate there the time was no no eight and a quarter percent um okay twenty five um is it taxable? Yes, yeah even though I didn't charge the customer sales tax um I still need to send in the sales tax for it so I need to put in the county or the district where uh I sold it so in this case it was san matteo let's say the rate there I think I said it was eight and a quarter percent okay, the tax amount would be two dollars and six cents but they didn't pay me twenty seven dollars and six cents so how do you fix this? Any ideas? I only got twenty five dollars uto add the two dollars and six cents too I guess it would be like bills you need to pay. I don't know where the nice attractive price with the prices they're all really good really good ideas. No. What I need to do is I need thio uh bake the sales cost into the original price. So what that means is is that, um this twenty five dollars sales price needs to include the tax so what would may price be with the tax included? Well, it would be the sales tax plus whatever the new base price of this is so I need to divide it by one point oh eight to five um does that make sense why I'm doing that? So I'm dividing the price by itself plus the tax rate. So one twenty five divided by one would give me one twenty five divided by a one point eight two five would give me the price divided by itself plus that eight and a quarter percent so my actual price then I was twenty three dollars and nine cents which means that I needed to collect a dollar ninety one in sales tax and look oh now equals twenty five hey, all right, I was paid for this via I don't know probably a visa maybe a mastercard who knows? Um and then what? What account would I put this under sales yeah, you put it under sales or you could put it under product sales if you're pulling out your shipping and handling separately when is this d'oh? Right now, right? Because I sold it I handed it off to them. So the due date is the same date um that they bought it from me. So I think that I said that that was the twenty second and that's that there's no shipping because I sold it in person but if they're worshipping you would include that separately and that's our very first transaction um oh there's also the payed column and the notes column on the next page no, this was the twenty second now if I wanted to track particular products um I could choose, uh a name to categorize the spy so if I want to say small hambone then every time I sell a small hambone I can put that in the notes and then I can sort this later on by product and just add those things all up together let's do another example maybe I'm gonna put you guys one of you guys in the hot seat for this uh, we sort of covered a similar thing. How great is this? This is what my, um craft show sheets used to look like write down all of the things that I was selling and then just right tick marks next to it, um and then sort of added up at the end and I had arrows going over because, um, you know, sometimes I charge different prices for different things. So, like, if I was selling to other vendors, I would give them a discount of twenty percent. So you know, I would have like I sold three of these kids at the regular twenty dollar price, but then someone bought it for me for a discount at sixteen, so they have to mark that in parentheses, so I remembered to enter that in later it's good stuff and then my expenses were just sort of listed here here's my craft fair booth helper the lunch I paid um it's just a mess it's fantastic and then I had oh from an inventory perspective this is great so I would cell I had some uh some cards some greeting cards and when you sell them single there one price but when you sell them as a three pack there a different price or it's discounted because you have three of them together um so what are we going to do with that let's do that as an example coming I should do with the next example actually having one where shipping is included just oh, sure yeah let's do one where shipping is included absolutely robert she say he's part of the transaction yes, I get it. Uh yeah let's pick a good one. What do we have here? Well rather than dig through all of these let's just oh, here we go. Here's a good one all right. Uh I'm going to cover up the uh, actual client but, uh this is a sort of hybrid product sales invoice uh this one's really good. This is for some custom invitations that I did for a gala for a museum um so I was providing them with service's um but the end result was that they were getting these thousands of invitations and I, you know, outsourced the actual printing and the cutting of these invitations but I did all the design for them so this had all kinds of wonderful things on it that get entered in uh two different places so uh the total for this job was ten thousand two hundred and ten dollars and they got twenty, six hundred invitations out of it. Um I'm just going to fold the top part down here so that we can really go through this and in the first four lines here I've got the actual parts of the invitation actually I guess it's the first five lines you've got the actual invitations you've got the reply cards the envelopes that they got sent in the return envelopes that the gala invitees needed to send uh and then you have a little map and then you have design and project management which is bill by the hour and then you have, um a nonprofit discount because they were a nonprofit their museum um and then we've got shipping and delivery which had to be upgraded because they took too long making decisions and then they needed them right away uh so what's our first plan of attack with this let's pretend that I sent out this invoice on january third because that's what I have up here uh what I put in what I put in first hear any ideas this is just the envoys this's not the payment right yeah there's no payment here this is just the invoices what I sent them so I haven't gotten any money yet okay so you put the date you maybe invoice yep I'm going to say is january third because that's what I have there already and then I think you should actually do them each separately yeah the total yeah separately absolutely okay um I could totally do that um but I think the due date would be the same well uh no because these guys were located in new york so um I couldn't send them in and voice and then expect them to get the payment back to me that very day I'm in the due date for all those items when it was actually due back whether it was seven days or sixty days it would still be the same date for all the product yes and services yes that's right for sure um so all of these things I had to buy basically from a printer so um if you wanted to uh you could lump these all together into one line item um and just have it be you know I wanted them to see how much each individual thing was because they were paying for it but from a bookkeeping perspective you could list it all out if you want to but you know I'm not really in the business of selling uh invitations full time like I don't really need to track how much I am selling envelopes for versus invitations this was a custom designed that I put together for them um so in that case I you know I wouldn't necessarily need to track these all separately if you were in that business if you do a lot of custom invitations yeah probably does make sense for sure to track all of this stuff separately but because I'm not because this is a one time thing I'm probably just going to put it all in um as one item and I'm just going to call it sails um so I'm going to put in custom invitations because that's what I sold them ah and then the price for all of those things you got to put the equals was forty seven fifty plus sixteen hundred put that in radius plus nine hundred plus a thousand plus five hundred so what's not big enough it's such a big number I can't even see it like god here we go eighty seven fifty for the actual invitations um if you wanted to because I sent them twenty, six hundred invitations if you wanted to you could put twenty, six hundred and here and then further divide this by twenty six hundred but I'm counting this as one job I didn't keep like twenty, six hundred invitations in inventory and then sell them off piecemeal so, um for the purposes of this we can just to one like set of invitations I didn't put a v in the invitations invitations come on, get with it. Not right. Yeah okay uh is this sales taxable? Why why is it not because it's not in your state that's right it's out of state so that's what I'm gonna put their out of state so there's no sales tax on there's no rent rate there's no amount er my shipping and delivery including the upgrade to three day select was two hundred and ten dollars man none of these are big enough. I can't see anything. Okay, um so the total for that was eighty nine sixty but I'm still missing a piece from here. This job total was ten thousand two hundred and ten dollars, well, part of my missing your hours your present man? Yeah, my project management. So what do we how do I enter that? Would you do a line item that's just project management or designer? Yes. You do a whole other line same date in the spell it right this time invitation design uh and for that I charged seventy five an hour tons twenty five hours which gets you eighteen seventy five but then I gave them and discount because they're a nonprofit where does that go? That is its own income uh, account kind of an accounts not really an account um it's a category called allowances it's the only negative income you would ever have so let's change this also to the third and we're going to put in nonprofit discount groups come on discount of what did I give them? Thirty three percent off what was I thinking? A huge discount uh so that's twenty five an hour well it's negative twenty five times twenty five so negative six hundred twenty five when even negative numbers in a spreadsheet like this it'll show up in parentheses why would you need to record that separately? Why would you just not deduct that from your invitation design and call it fifty dollars an hour because you want to track it separately? Yeah, because if you're offering people discounts or sales or coupons on a regular basis um you want to know like how much of that am I you know, how much money am I losing by incentivizing customers? We're rewarding them or um you know, making allowances because they're not profits or their friends and family um you know it's it's it's really easy to sort of give that stuff away is a discount and then not pay attention to what's happening and then suddenly your profit is released really slim and you don't understand like my prices air correct I'm selling a lot why am I not making enough money and maybe one reason for that is because you're discounting too often or you're offering too many sales deals coupons, etcetera um so it's definitely something that you would want to track separately um there is a separate line item for that on the ah us tax return on that schedule c form that I brought up in the income section there's a whole line just for allowances um so it's nice to track that on its own yes, I'm trying to figure out from this like, if I have my calendar when my invoices or do and I'm using like even my little just pocket calendar like how do I use this to, like search to end voices because this is just products and services, right? It's not necessarily like it's tied to an voice but I wouldn't be able to look at this and see what invoice it's tied to well, if you had a particular invoice number and all of my invoices do you have a number on top okay um and you wanted to track it uh that notes section is a really good place to do that. Okay, so um in your notes you can put er you know, under here invoice number four fifty six um you could also tag the whole job as, uh you know, museum job um so that all three of these lines are the same, so they're all you can see that they're all part of the same job? Um, if you get paid by check, you could put in the check number check number one o three. Um, so if you have specific numbered items like a check number, like an invoice number, the note is a really good place to put that, and then you can search for that. You can see up in the corner here, you have search and sheet and then if you were looking for what happened with invoice number four fifty six, it'll jump right? Tio, where you've put it in? Yeah, that's a good question. Um, so we've got a tag. These things let's say this was all paid by check this mouse is not what I'm used to, um, and then what would our accounts be for these three items? Thie invitations, the design and the allowances I was consulting, yep, product sales for the actual invitations cause I essentially bought those wholesale from the printer and then sold them retail to the customer and I don't pay a sales, but I don't pay sales tax because they're not in state, even though they are the end customer um and then under here we have consulting and then under here you can put allowances

Class Materials

bonus material with purchase

Bookkeeping Resources.pdf
Product Profit Calculator.xlsx
Sample Invoice.pdf
Sample Contract.pdf
Fancy Ledger for Creatives.xlsx
MileageDiary.pdf
Simple Ledger for Creatives.xlsx
Freelancers Rate Calculator.xlsx
Crafters Sample Chart of Accounts.pdf

Ratings and Reviews

Bekah Kitterman
 

Months after watching the live broadcast of this course, I am still so glad I bought it. I find myself coming back to it over and over again just to refresh my brain on how to manage all of my numbers. I'm new at having a business and doing my own bookkeeping, and this course has been extremely helpful as a tool to help me set things up well and keep me on track. Highly recommend especially for those new to business and bookkeeping or intimidated by taking care of your numbers!

Aleks
 

There is so much fantastic information in this course that I had to purchase it even though I watched the free broadcast. It's real hands-on stuff, not a general description of what bookkeeping might be, but an actual guide to manage your business' finances. Thank you for all the insights and workbooks! I highly recommend this class.

Carla Sam
 

Wow, this course was jam packed full of insightful information (not just about book keeping!). Lauren was great at simplifying the process! Even though I watched most of the 2 days free broadcast, it was a wise investment to purchase the course and now I can re-watch at my leisure and fully take it all in. Thanks Lauren! :D

Student Work

RELATED ARTICLES

RELATED ARTICLES