Inventory and Inventory Asset is created in QuickBooks online. Why both?

ROS RV · ‎June 17, 2023

Hi there. I just started a new business and signed up for QuickBooks Online. I am new to QB and accounting. I am looking for an accountant to help me figure things out but haven't found one yet. In the meantime, this question doesn't let me sleep: Why there are two different accounts in QB, Inventory and Inventory Asset? I asked two different people from QB and this is what they basically saying (I copy/pasted their reply): "So they are items that the company sells for profit. Inventory can be anything that isn’t being sold." But this answer doesn't explain anything to me. Is there anybody here who knows why there are two inventory accounts and which I should use? We have parts that we sell in the store and parts that we use in service.

Nicole_N · ‎June 17, 2023

Welcome back, ROS RV.

I appreciate you sharing your understanding of Inventory assets in QuickBooks. Allow me to share additional information about it and some insights about the Vehicle expense in the Chart of Accounts.

The inventory assets are already included in the default account. So since there are other inventory assets that were set up by accident, it's possible someone attempts to edit or deactivate that account. Doing so can recreate it.

About the Vehicle expense that is placed on other assets, it actually depends on the one who set it up. When someone created the Vehicle Expense category, it could be that he/she placed it on Other Expenses. You can change the type or detail type of an account as long as they don't have any subaccounts. For subaccounts, you must select the same account type as their parent. Here's how:

Go to the Accounting menu and select Chart of Account.
Search for the account (Vehicle Expenses), then click the ACTION drop-down list and click Edit.
Choose the correct Account Type (Expense).
Fill in the needed details and hit Save & Close once done.

If you need further assistance managing your chart of accounts, I recommend reaching out to your accountant for further advice. That way, we can ensure that your books are correct.

I'm adding these articles to learn more about how the chart account works:

Keep your posts coming if you need more clarifications. The Community team is here to answer them for you. Take care!

View solution in original post

ChristieAnn · ‎June 17, 2023

Hi there, ROS RV.

Thank you for visiting the QuickBooks Community. I'll share details on how accounts work in QuickBooks Online. Also, ensure you can choose the best one for organizing your products in QBO.

When you create your company in QBO, default accounts in your chart of accounts will be automatically created for you based on the business entity you choose. Also, the time you create your first inventory item in your Inventory List, QuickBooks adds two accounts to your company file's Chart of Accounts. These are:

12100 - Inventory Asset - Other Current Asset
50000 - Cost of Goods Sold (COGS) - Cost of Goods Sold

In addition, each inventory item requires an income account. You're not required to utilize either of the automatically set-up accounts because you can create on your own. It's possible that one Inventory account you're referring to was manually created in QuickBooks. In this situation, you may use it to track your product sales or services.

On the other hand, I also recommend consulting an accountant. They can advise you on which inventory account to use for your goods and services to record the transactions correctly. Since you haven't found an accountant, you can find one by visiting our ProAdvisor website. There are thousands of trained ProAdvisors and CPAs available to assist you from there.

Lastly, I'm adding this article if you need help in managing your items in QuickBooks: Add product and service items to QuickBooks Online.

Feel free to post again if you have more questions about Inventory accounts in QBO. I'll be happy to lend a hand, ROS RV. Take care and have a good one!

ROS RV · ‎June 17, 2023

Okay, thank you. Basically what I understood is that Inventory Asset is a default account and can't be modified and deleted. The other one called Inventory was set up by accident or for some other reason by the system or a person who helped me sign up. Because I can guarantee you that I was the only other person touching this service and I know I didn't enter it manually.

Looking deeper into Chart of Accounts I found there are a few accounts that are placed in categories that make no sense to me. One in particular stands out: Vehicle expenses. This account and its sub-accounts are placed as Other Expenses type but in my understanding Vehicle expenses are crucial to our business. In fact we couldn't do it without our service truck. Why was it placed under Other Expenses and not under Expenses? Maybe there is a good reason for it. Is this something you can help me figure out? Or do I need to post a separate question in this forum?

Thanks for your help!

Nicole_N · ‎June 17, 2023

Welcome back, ROS RV.

I appreciate you sharing your understanding of Inventory assets in QuickBooks. Allow me to share additional information about it and some insights about the Vehicle expense in the Chart of Accounts.

The inventory assets are already included in the default account. So since there are other inventory assets that were set up by accident, it's possible someone attempts to edit or deactivate that account. Doing so can recreate it.

About the Vehicle expense that is placed on other assets, it actually depends on the one who set it up. When someone created the Vehicle Expense category, it could be that he/she placed it on Other Expenses. You can change the type or detail type of an account as long as they don't have any subaccounts. For subaccounts, you must select the same account type as their parent. Here's how:

Go to the Accounting menu and select Chart of Account.
Search for the account (Vehicle Expenses), then click the ACTION drop-down list and click Edit.
Choose the correct Account Type (Expense).
Fill in the needed details and hit Save & Close once done.

If you need further assistance managing your chart of accounts, I recommend reaching out to your accountant for further advice. That way, we can ensure that your books are correct.

I'm adding these articles to learn more about how the chart account works:

Keep your posts coming if you need more clarifications. The Community team is here to answer them for you. Take care!

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Inventory and Inventory Asset is created in QuickBooks online. Why both?