Sales of Farm Production: Finding the Average Selling Price

To have detailed sales information you have to enter sales "the right way"—which in this case means you have to get into the habit of using Items in sales transactions.

Items (in the QuickBooks desktop editions) are called Products & Services in QuickBooks Online, but they have the same purpose in both QuickBooks editions:  to serve as identifiers for things you buy and sell. For simplicity I'll refer to both of them as Items throughout the rest of this article.

If you have only used accounts in the past, you may not realize how much of QuickBooks' information potential you are missing by not using Items. When Items are used, QuickBooks lets you enter quantity information in transactions, and that makes it possible to get quantity totals and related information on reports, including sales or expenses detail even for very specific things such as a particular group of cattle, or last year's soybean crop, or the prices you have paid for a particular product (a herbicide, fertilizer material, feedstuff, etc.).

You will have to develop a few new habits if you have not been using Items. But besides delivering enhanced sales information, those new habits will eventually save you time and effort by making transaction entry faster and easier. And realize that you don't have to set up the Items you will need all at once—you can set up just the one(s) you need for entering a particular transaction, then set up others later as you need them.

Most of the things you buy or sell may be represented as either Non-inventory Part, Inventory Part, or Service Items. (Other types are also available for other purposes.)

❖Inventory Part Items are a top choice for representing many kinds of farm production because they let you record sales quantities in your transactions and let QuickBooks automatically keep track of inventory quantities as you enter sales. At any time, a quick glance at QuickBooks can tell you the number of bushels or head of livestock on hand, plus the bushels or weight contracted for sale, if any, and contracted prices. QuickBooks can even keep track of bushels in different locations (bins, commercial storage, livestock buildings or feedlot pens, etc.), if you want to go to the effort of setting up an Item for each location.

Inventory Part Items work differently in QuickBooks Online...

More about Inventory Part Items...

❖Non-inventory Part Items are good for recording sales of things you produce, but without the inventory capabilities of Inventory Part Items. For basic QuickBooks use (without inventories), Non-inventory Part Items are the usual choice for recording sales of farm production.

❖Service Items are good for recording sales or purchases of services like custom harvesting, trucking, or chemical application.

Item setup varies a bit depending on the Item type, but in general it involves giving the new Item a name and associating it with one or more accounts from the Chart of Accounts. (QuickBooks will post income or expense to the account when you use the Item in a transaction.)

Here's how a Non-inventory Part Item to represent corn sales might be set up, so that it will post income to an account named Sales (Raised):Grain:

QuickBooks desktop, Corn Item setup...

Menu commands: Lists > Item List > [Item button] > New

QuickBooks Online, Corn Product/Service setup...

Menu commands: [Gear] > Products & Services > [New button] > Non-inventory

Tips on organizing the Item list...

Menu commands: Customers > Enter Sales Receipts

Menu commands: Sales > [New Transaction button] > Sales Receipt

Chapter 8 of The QuickBooks Farm Accounting Cookbook™, Volume II: Raised Farm Production Inventories, Sales, and More... explains how the Undeposited Funds account works, including screenshots and examples.

Menu commands: Reports > Sales > Sales by Item Detail

Menu commands: Reports > All Reports > Review Sales > Sales by Product/Service Detail

You can get average purchase costs for inputs and other expense purchases just as easily as for things you sell.

As with sales, the main requirement is that you enter purchases using Items. You probably won't want to set up a unique Item for each thing you buy, but setting up Items for major inputs or things you purchase frequently is easy, and makes sense to do. If you feed livestock, you might set up Items for the major feedstuffs you buy—feed grains, soybean meal, distiller's grains, and so on.

The Purchases by Item (or Purchases by Product/Service) report will let you to quickly find purchase transactions from the past year or more, to see how much you paid for particular feedstuffs at different times or to calculate an average price if you want—which can be useful information for preparing a budget.

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