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

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

Step 2: Create a new item for samples/promotions

Step 3: Create the invoice to record samples/promotions