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Intuit

Understand stock assets and cost of goods sold 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're 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 buy an stock item, your Bill, Cheque or Credit Card Charge will debit the Item's Stock Asset account and credit your A/P, bank or credit card account. It is not debited to an expense account because it is an asset that you can sell for future benefit and 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 only affected 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'll 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 the next bills, cheques, or credit 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 run the Stock Valuation Summary report. This shows you how QuickBooks got the item's average cost.

  1. Select Reports, then select Stock.
  2. Select Stock Valuation Summary, then set the dates to All.
  3. Double-click the item in question.

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