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V
VTXtools
June 2, 2023
Question

Inventory vs. non-inventory and COGS

  • June 2, 2023
  • 2 replies
  • 69 views

Currently I have two vendors that drop ship on our behalf. I have all the products that they ship set up as non-inventory. These products are not low value items. They can range from $100 to $10,000. In searching around the Q&A forums I found an answer that states "Then, you can choose to use non-inventory items only when the value of that stock is not significant, or if you are recording the stock value manually through accounts other than inventory."

 

The process is typically I receive an order via my ecommerce site. That order sits there until I mark it fulfilled at which point the order pushes over to QBO as an invoice. When I first received the order I created a PO that was then submitted to the vendor. All this seems to be working fine. 

 

My question is since these products are set up as non-inventory but are still high value am I approaching this correctly or should I be treating them as inventory? One issue I have is it becomes a bit of a pain to calculate my margins as COGS are not recorded. I do realize that the expense floats up but would be nice to see the COGS so as to easily be able to calc my margins. But that isn't a show stopper. 

 

What is everyone's recommendation? Treat these products as inventory item even though I never take physical possession or leave as non-inventory and just calculate the margins manually?

 

Thanks in advance.

2 replies

Rainflurry
Rainflurry
Level 11
June 3, 2023

@VTXtools 

 

You are doing it properly.  The products are not inventory for you, they are inventory for your vendor.  Two businesses cannot claim inventory on the same product.  The bottom line is that if you do not have title to the products, they are not inventory.  You can still book the cost of them to a separate expense account and see your margin(s).  Just record the cost of the products to a dedicated expense account when billed from your vendor.  You will not have the QB inventory reporting features because they are non-inventory items, but it is the proper way to record it.

V
VTXtoolsAuthor
June 3, 2023

Just to make sure I understand correctly, I should set up a sub COGS account for the product and then link the product to that particular COGS account and that would allow me to track that product outside of just the general COGS. I must be missing something as even after I have isolated a non-inventory item to its own sub COGS expense account I still am not able to view a margin for it when I run a report for sales by product/service summary.

 

 

Rainflurry
Rainflurry
Level 11
June 4, 2023

@VTXtools 

 

COGS is an expense account used only when inventory items are sold.  You should use a non-COGS expense account(s) and calculate your margin manually.  You aren't missing anything - QB cannot connect the cost of the item to the sale of the item for non-inventory or service items and, therefore, cannot give you a profit margin for non-inventory and service items. 

E
Eleanor Cleverence
September 25, 2025

You're hitting a bit of a snag here, balancing non-inventory setup with tracking COGS and all, especially with pricey items. Non-inventory items in quickbooks are more for stuff u never actually have in hand, but yeah, this messes with cost tracking big time, like you're dealing with now.

When you treat these drop-shipped items as non-inventory, it skips the whole stock management part, which makes sense since they're never physically with you. But here's a downside - your COGS visibility is kinda foggy, making those margin calculations a headache. To get a real-time view of COGS without going crazy with manual math, you might try setting up these items as inventory but disable stock tracking, adjusting how you enter purchase and sales data. In QuickBooks, this trick lets you use the automatic COGS tracking without the hassle of real inventory management.

By keeping these items as inventory, quickbooks handles COGS better, giving you a clearer picture of profits. If knowing margins is a biggie for you, it's something to consider. Otherwise, stick with non-inventory and keep at refining your manual process. Yeah, it can defintely be tricky.

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