Learn about initial cost and how to compute and set it up in QuickBooks Commerce.
A product’s initial cost helps keep track of 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.
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
- 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), which includes your products’ initial costs. When you have an accurate computation of 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:|
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. Find out how to update your variant 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 an 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 which 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, you can get in touch with us so we can help you out.