This is the third article in a monthly series feature on Bookkeeping and Accounting in Your Yarn Related Business (BAYYRB).  This monthly article will be published the first Wednesday of each month.

Let’s talk about your yarn stash {gulp}!

If you are like me (and I’m sure you are) you have a pretty sizable stash of yarn tucked away – some was probably an impulse buy, others you bought while they were on sale, and some yarn is tagged to specific projects, maybe a custom order or just future projects that you intend to make and sell.

No matter the reason that you bought the yarn, every skein of yarn that you’ve purchased is considered inventory and you have to keep a record of the cost and report it as inventory on your tax return if you are serious about running a yarn related business.

In essence, every person who makes and then sells a handcrafted object – be it a sweater, an amigurumi toy, a scarf, etc. – is a manufacturer.  We buy materials (yarn, eyes, buttons, etc.) and then combine those materials into a finished object that we intend to sell.

In reality we have two types of of inventory:

  1. our raw materials
  2. our finished objects

Both of these have value and we must record or track this value (cost), not only to report on our business tax returns but also so that we can also calculate the sales price of our finished item.

Yes, this is where things get complicated and groan we also need to get serious about bookkeeping!  This is also where we must set aside time to deal with the behind the scenes tasks of running a business.  Now I know we would all rather be working on projects – but it’s time to buckle down and develop a system.

Many people rely on Excel spreadsheets to track their stash purchases, perhaps something similar to that shown below.

inventory worksheet

And then another Excel spreadsheet to track the costs and their time spent on creating a finished object.

finished object pricing worksheet

This can get really cumbersome because you are going to spend a lot of time updating spreadsheets.  But, hey if it works for you then that’s ok – as long as you update those spreadsheets diligently.  And remember, each year you are going to need to know what you had on hand in your stash at BOTH the beginning and the end of the year for tax purposes.

Personally, I use QuickBooks Premier – because it has a more robust inventory feature than QuickBooks Pro.  All of my raw materials (yarn, beads, child safe eyes, etc.) are entered as Inventory Items and all of my finished objects are Inventory Assemblies (this is where I select the items from inventory – yarn, beads, craft eyes, record my time, etc. that go into my finished object).  Once that is in place I then select an option to Build an Assembly.  As soon as I do that, QuickBooks then automatically adjusts my inventory by those quantities to show me how much I have left in my stash – for example:  If I had 500 yards of a specific yarn in inventory (the Inventory Item) and I used 450 yard of that yarn in a finished object (my Inventory Assembly) when I chose to Build an Assembly and saved it – QuickBooks would show me that I now had 50 yards of that specific yarn left to use in inventory.

And best of all – everything is all in one place and I don’t have to remember to update multiple spreadsheets!  I also don’t have to worry about tracking what I had on hand at the beginning or end of the year, because I can easily get those numbers out of QuickBooks.

Whatever method you use, Excel or QuickBooks – you do need to be diligent about entering the information – get into the habit of setting aside an hour or so every week just to do your bookkeeping – don’t wait until the last minute and you have to get everything ready to take to your accountant so you can file your taxes.

If you’d like to see a video on how all of this works in QuickBooks, please leave a comment and perhaps I’ll record a video to show you.

Happy Hooking!

Previous Bookkeeping and Accounting in Your Yarn Related Business (BAYYRB) articles.

Your Yarn Related Business & the IRS

Bookkeeping & Accounting in Your Yarn Related Business

Nancy Smyth

Hi, I'm Nancy I'm a yarn addict, number cruncher/bookkeeper, and software developer. Strange combination right? I get the same feeling of joy when working with high quality yarns that I do when a column of numbers are all neatly aligned and add up properly.

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