Learn about the initial cost, how to compute and set it up in QuickBooks Commerce.
A product’s initial cost helps track your business’ health through cost tracking, profit margin reporting, and determining the total stock value. Find out why initial cost is important and how QuickBooks uses it to keep your books up-to-date.
|QuickBooks Commerce is no longer available for purchase as a stand-alone product.|
The features referred to in this article are only relevant for customers who still have QuickBooks Commerce bundled with their QuickBooks Online subscription.
If you want to learn more about e-commerce accounting features that are part of QuickBooks Online, check out Accounting for e-commerce FAQ.
What is initial cost and why is it important?
Initial cost is the average cost of purchasing or manufacturing your stock on hand.
Here are some reasons why it’s important to determine and set up the initial cost of your stock.
- It helps keep track of the moving average cost
The moving average cost (MAC) determines the real cost of a product over its lifetime. In QuickBooks Commerce, a variant’s moving average cost starts from its initial cost. It’s continuously recalculated based on stock movement, such as the purchase or sale of products.
- It keeps your profit margin accurate
- It helps determine your business tax
To compute your business tax, you need to know your cost of goods sold (COGS), including your products’ initial costs. When you accurately compute your cost of goods sold, it can help reduce your business tax.
How to compute a product’s initial cost
A product’s initial cost depends on its buying price and different factors. Here are some reasons why your initial cost might be higher or lower than its buying price:
- Discounts. If your vendor gives you a discount, it reduces your product’s initial cost.
- Landed costs. If your vendor ships your products, you incur shipping and/or handling fees. These fees add to your product’s initial cost.
- Multiple vendor costs. If you purchase your products from different vendors, their prices might have significant differences. The price differences add to or reduce your product’s initial cost.
How to set up initial cost in QuickBooks Commerce
You can set up initial costs per variant.
|Important: You can’t change a variant’s initial cost once there are transactions that affect the number of stocks, such as the following:|
- Product sales and sales returns
- Product purchase and purchase returns
- Stock adjustment
When you set up a new product
- Go to the Inventory menu, then select Create New.
- In the Initial Cost field, enter the cost.
- If your product has multiple variants or pack sizes, enter their initial costs on the next page.
When you import a product
If you import your products from sales channels (Shopify, WooCommerce, etc.) or use a CSV file, you can use the Import Initial Cost tool to set up your initial cost.
Important: You can’t use the Retail and Wholesale price columns from the Initial Cost CSV template to update your variants' prices.
- Go to the Inventory menu, then select Products.
- From the Bulk Manage ▼ dropdown, select Import Initial Costs. Learn more about how to set up initial costs on imported products.
Note: If you have Accounting integration installed, you won’t see the Import Initial Costs option.
When you complete a sales order or receive a sales return
When the products in a sales order or sales return don't have their initial costs set up, you receive a prompt to set their initial costs.
- Select Set initial cost now.
- Select and upload the product’s initial cost using a CSV.
When you receive a purchase order
When the products in a purchase order don't have their initial costs set up, you receive a prompt to use the costs per item or set up the initial costs manually.
Note: The cost per item doesn’t include the landed cost.
When you enter a stock adjustment
When the products in a stock adjustment don't have their initial costs set up, you receive a prompt to use the costs per item or set up the initial costs manually.
When you add a new sales channel
When you add a new sales channel, some initial costs don’t come over during import. For products that don’t have initial costs, select Set up initial costs now, then enter the cost per product.
Frequently Asked Questions
What is my product’s initial cost?
If you’re not sure of your products’ initial costs, or if you get free shipping (no landed cost), the initial cost is usually the same as the product's buying price. You can also reach out to your accountant to make sure.
Note: You should only set the initial cost to zero if you get the product for free.
What if my initial cost is incorrect?
If your initial cost wasn’t set up correctly and you already have transactions that affect your inventory count, use the 'Help' button in-app to reach out to us.