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Cash Basis reports are incorrect when inventory items have a zero sales price

by Intuit• Updated 2 years ago

One way to record inventory items you donate or give away as a sample/promotion is to change the item’s sales price to $0. This accounts for the decrease in inventory, without affecting sales. However, if you run financial statements on a cash basis, QuickBooks misstates your income (on the Profit & Loss) and Accounts Receivable (on the Balance Sheet) causing the Cash Basis Profit & Loss and Balance Sheet reports to be incorrect.

NOTE: This is not a problem if you run your reports on Accrual basis.

Follow these steps to avoid this problem and keep track of items you give away.

Step 1: Create a new income account for samples/promotions

  1. From the Lists menu, click Chart of Accounts.
  2. Click Account > New.
  3. Select Income as the account type.
  4. Click Continue.
  5. Name the account Samples/Promotions (or a name that explains why you’re giving the items away).
  6. Click Save & Close.

Step 2: Create a new item for samples/promotions

  1. From the Lists menu, click Item List.
  2. Click Item > New.
  3. Select Other Charge as the type.
  4. Name the item Sample/Promo (or a name that explains why you’re giving the items away).
  5. Write a description like donation/sample/promotion.
  6. From the Account drop down, choose the Samples/Promotions account you created in Step 1.
  7. Click OK.

Step 3: Create the invoice to record samples/promotions

  1. From the Customers menu, click Create Invoices.
  2. Complete the invoice as usual. Add the items you’re giving away at the price you usually charge. Do NOT change the sales price to $0.
  3. On the line below the items you’re giving away, add the Sample/Promo item you created in Step 2.
  4. Enter the amount of the Samples/Promo item(s) as a negative amount that equals the total price of the items you’re giving away.  For example, if the total sales amount of the free item(s) is $30.00, enter the Promo item amount as -$30.00.Note: If all the items on an invoice are giveaways, the invoice will be marked as paid and have a zero balance.
  5. Once you're done with the invoice, click Save & Close.
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