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sajid1110
Level 1

Invoices created appears as a cost of goods sold

Invoice created with inventory item details.

 

Appears as a cost of goods sold.

 

Actually, from profit and loss, COGS is double clicked for details. List appears. Double clicking it reveals that Invoice with inventory item appears as COGS.

 

4 Comments
Alex M
QuickBooks Team

Invoices created appears as a cost of goods sold

Hi there sajid1110,

 

Knowing your inventory is an important part of the bookkeeping process. QuickBooks Online makes it easy to track your items in stock with inventory tracking. I can assist you with that.

 

When you make a sale of an Inventory item, the cost of the item is recorded in Cost of goods sold at the moment of the sale. This offsets the decrease in your Inventory asset account, and the other accounts affected will be an income account as well as the Accounts receivable account. If the sale were to be done using a Non-inventory item, only the last two account types will be affected in the sale as the inventory is not tracked. You can further read about this in this article that explains Impacts of inventory tracking on balance sheet and profit & loss reports.

 

Another good source of information regarding the accounting principle behind inventory tracking would be your accountant. Their knowledge of inventory management as well as best business practices will be able to explain the movement of money when making a sale of an inventory item. You can invite them to your QuickBooks Online account by clicking My Accountant and adding their contact info to send them an invitation by email. You can also find an accountant near you with experience with QuickBooks Online by clicking the Find a pro to help button. 

 

I hope this helps you understand the movement of inventory value in QuickBooks Online. If you need any more information, feel free to reach out here.

sajid1110
Level 1

Invoices created appears as a cost of goods sold

Sorry. I understand everything about inventory and its valuation.

 

May be the second part of my original post would give you a better idea of a question.

 

I am in profit and loss account report. I click the cost of goods sold in order to get the details. There appears an invoice for the product sold as a cost of goods sold. How can it be possible? Sales invoice - has it been converted to cost at cost price and taken as a COGS automatically?

 

 

sajid1110
Level 1

Invoices created appears as a cost of goods sold

Also, when this COGS is entered automatically, if yes, how do I enter the purchase of an inventory item as in the form of the bill received from the supplier? Entering that bill wouldn't that double my purchase price. And what happens to the accounts payable portion as well?

Rebecca R
QuickBooks Team

Invoices created appears as a cost of goods sold

Hello @sajid1110 and thanks for providing some clarification on your original question. Understanding the way that your inventory is tracked in QuickBooks specifically, will ensure that you know what money movement to expect between accounts. I want to give you a hand with this.

 

I ran a test in my test account and created a new Inventory item. I set the item cost at $0.25 and the sales price at $0.99. My Expense account is set to Cost of Goods Sold, and my Income account is set to Sales of Product Income. These are the default accounts. I created a new Invoice, selling 1 of my new items. I then ran the Profit and Loss report as you indicated, and clicked on the amount under Cost of Goods Sold. My Invoice appears within that Transaction report, reflecting the Cost of the item, rather than the Rate or Sales Price. This is how this feature is intended to work. 

 

When you're purchasing your Inventory items, you can start by entering Purchase Orders, or skip straight to entering a Bill. When you enter the Purchase Order or Bill, you'll enter the Item details for each Inventory item you're repurchasing. For example, if you order 100 more of an item, the rate you're paying and the total amount will be reflective of what you've saved. If you navigate to the Products/Services tab after entering the Bill, you'll see the amount of Inventory that you've purchased has been added to your Quantity on Hand. Your purchase price won't be doubled if you've entered the correct Rate and Cost within the Product/Service details. 

 

When you've entered the Bill for these inventory items, the total amount will appear in the Accounts Payable, and once you've recorded the Bill payment, it'll clear out your Accounts Payable, leaving you with a $0.00 balance. QuickBooks Online works with a concept called FIFO (First In, First Out). This means that the first units you purchased are the first to be sold. If your cost or rate changes, the items purchased at the previous cost will be sold first. You can learn more about this concept, as well as how the Inventory feature works, within the articles below:

 

 

If you still have questions after reviewing this information, don't hesitate to reply to this thread again. I'm happy to assist you further if you need it! Take care.