Impacts of inventory tracking on the Balance Sheet and Profit & Loss reports in QuickBooks Online

Inventory tracking has specific impacts on your Balance Sheet and Profit & Loss reports.

Impact on the Balance Sheet

• The Balance Sheet shows the Inventory Asset accounts that are associated with your inventory-enabled Product/Service items.
• You'll find these grouped under Other Current Assets.
• The asset balances show the cost of your current (unsold) inventory.
• If your business operates on a cash basis, you'll need to customise the Balance Sheet report and change the accounting method to Accrual in order to see these balances.

Impact on the Profit & Loss report

• The Profit & Loss report shows the Sales of Product Income accounts and the Cost of Goods Sold (COGS) accounts that are associated with your inventory-enabled Product/Service items.
• COGS accounts display in a separate section of the report between the Income and Expense sections.
• The difference between your Total Income amount and your Total COGS amount is shown on the Gross Profit line.
• If your business operates on a cash basis, you'll need to customise the Profit & Loss report and change the accounting method to Accrual in order to see the correct Gross Profit amount.

Cost of Goods Sold is an account that reflects the cost of materials and goods held in inventory and then sold. When you sell an item from your inventory, Cost of Goods Sold increases by the amount you paid for that item when you purchased it. The difference between the income from the sale and the increase in Cost of Goods Sold is the gross profit on the sale of that item.

Other reports that should be run on an accrual basis

If inventory is received and paid for in the future with one or multiple payments, Quantity on Hand (QOH), Cost of Goods Sold (COGS) and Inventory Asset Account values may not be correctly reflected using cash basis, depending upon the report dates. The affected reports are:

• Inventory Valuation summary
• Sales by Product/Service summary
• Sales by Product/Service detail
• Purchases by Product/Service detail

Now you've learned about the impacts the inventory tracking has on your Balance Sheet and Profit & Loss reports.