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Intuit
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Moving your inventory over from Desktop

The most important thing to be aware of when moving from QuickBooks Desktop to QuickBooks Online is that desktop versions of QuickBooks use average cost to calculate your inventory costs. QuickBooks Online uses FIFO.

For most businesses, first-in-first-out (FIFO) produces the biggest gross profit and highest ending inventory value on the balance sheet. It also shows how inventory flows through your business more accurately.

Note:  If you prefer not to use FIFO or enable inventory in QuickBooks Online, select No, don’t turn on inventory and don’t track quantity on hand. You can change these settings later, but if you do, you will need to set up new inventory items. We recommend that you reach out to a tax professional if you need help to make this decision.

Set your inventory start date

QuickBooks Online calculates inventory costs from the inventory start date using FIFO. Any existing transactions on or after this date are also recalculated under FIFO. Because of this, we recommend using the first day following your company’s last tax filing period to avoid filing amended forms.

Once you set the inventory start date, you won’t be able to change it again, and any transactions prior to this date cannot be edited.

Let the IRS know you've changed your inventory costing method

The IRS requires you to commit to an inventory costing method the first year you file a business tax return. However, you can apply to change your cost method. You’ll need to file Form 3115 for the tax year you first implement your new inventory cost method (this is the inventory start date you set above). IRS consent for this change is automatic when you file a correctly completed Form 3115, and there is no review or approval process.

Complete this form and send it in by the due date for timely filing of your business tax return. For the current tax year, it must be filed by October 15 (the due date of your return with an automatic 6-month extension).

If you have questions about completing this form, reach out to your tax advisor or accountant.

Let the IRS know you've changed your inventory costing method

To best describe how the change from Average Cost (Desktop) to FiFo (Online) will look on your reports, see the example below.

Joe’s Burger Shack purchases produce twice a month. Produce costs change over time. Below is a record of purchase orders made for meat:

Purchase date Quantity (lbs) Cost per pound Cost to business
1/1/18 100 $0.70 $70.00
1/15/18 125 $0.73 $91.25
2/1/18 150 $0.78 $117.00
2/15/18 200 $0.80 $160.00

 

Purchase date Quantity (lbs) Cost per pound Cost to business
1/1/18 100 $0.70 $70.00
1/15/18 125 $0.73 $91.25
2/1/18 150 $0.78 $117.00
2/15/18 200 $0.80 $160.00
Totals 575 $438.25

 

In this example, we assume only 200 lbs. of meat were used to make sandwiches. See the table below on how Cost of Goods Sold (COGS) is calculated. We have also included the average costing method that desktop versions of QuickBooks use to provide a side-by-side comparison.

Average Cost FIFO
Calculate the average cost per pound:

($70.00 + 91.25 + 117.00 + 160.00) / (100 + 125 + 150 + 200) = $0.76 per lb

Multiply the average cost by quantity sold to determine Cost of Goods Sold:

$0.76 x 200 lbs = $152

Calculate Cost of Goods Sold for the first purchase date:

$0.70 x 100 lbs = $70

Multiply the remaining 100 lbs by the cost per pound of the next purchase date:

$0.73 x 100 lbs = $73

Add the values of both purchase date to determine Cost of Goods Sold:

$73 + $70 = $143

 

You can see these changes on your balance sheet. We have also included the average costing method that desktop versions of QuickBooks use to provide a side-by-side comparison.

Average Cost FIFO
Other Current Assets

Inventory Asset

$286.25 Other Current Assets

Inventory Asset

$295.25

Now you can see the difference between Average Cost and FiFo accounting.

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