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Understand Stock Assets and COGS tracking

To successfully track stock, you need to understand how QuickBooks handles stock assets, average cost and Cost of Goods Sold (COGS). Learn how to compute for the average cost and know which report will help with stock management in this article.

Stock Accounts

When you set up your first stock item in your Stock List, QuickBooks automatically adds two accounts to your company file's Chart of Accounts:

  • 12100 - Stock Asset - Other Current Asset
  • 50000 - Cost of Goods Sold (COGS) - Cost of Goods Sold

In addition, each stock item requires an income account. You are not required to use either of the automatically set up accounts. You can set up your own accounts or subaccounts.

Note: If either of these account numbers is already in use, QuickBooks will assign the next available number to the new accounts.

Stock Assets

When you purchase an stock item, your Bill, Cheque or Card Charge will debit the Item's Stock Asset account and credit you A/P, bank or card account. It is not debited to an expense account because (1) it is an asset that you can sell for future benefit and (2) you record the expense to match the income.

The best way to track your stock purchases is to run the Stock Valuation Summary/Detail reports for all dates.

Cost of Goods Sold

Normally, stock COGS is affected only when you sell stock items on invoices or sales receipts. When you sell an stock item, run the Transaction Journal Report for the invoice/sales receipt and you see the Sales/Accounts Receivable transaction and you will see the Stock/COGS transactions which credits the Stock Asset account and debits the COGS accounts.

However, if you sell stock that you do not have, you can force subsequent bills, cheques, or card charges to adjust the Stock Asset account and the COGS account. The amount on each side of the Stock/COGS transaction is: Number of Items Sold x Average Cost of Item.

Average Cost

QuickBooks uses the weighted average cost to determine the value of your stock and the amount debited to COGS when you sell stock. The average cost is the sum of the cost of all of the items in stock divided by the number of items.

  1. You purchase a widget for $2.00. The average cost is $2.00.
  2. You purchase a second widget for $1.50. The average cost is now (2 + 1.5) / 2 = 1.75.
  3. You sell a widget. The stock/COGS transaction debits COGS for $1.75 and credits stock for $1.75.
  4. You purchase another widget for $2.00. Now your average cost is (1.75 + 2.00) / 2 = 1.88.

If you have any questions about an average cost, your best course of action is to:

  1. Run the Stock Valuation Summary report (Reports > Stock > Stock Valuation Summary). Set the dates to All. QuickZoom (double-click) the item in question. The Stock Valuation Detail report shows you exactly how QuickBooks derived the item's average cost.