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A
AndrewY
February 14, 2022
Question

Inventory Asset

  • February 14, 2022
  • 2 replies
  • 8 views

Using Quickbooks Online, my inventory purchases are showing up as expenses on my P&L. 

 

Some background. I am a car dealer, frequently making inventory purchases (vehicles) by check or credit card. I have my bank and card set to auto import transactions, which works great. When my inventory purchase appears on the bank or credit card tabs, I proceed to categorize them as Inventory Assets. I have this categorized in my chart of accounts as Type: Other Current Asset, Detail type: Inventory, Name: Vehicle Inventory. My issue is once I categorize the purchase as mentioned, my P&L expenses are debited. My current profit is eroded with each purchase.

 

I do not use the QBO inventory feature because every single "item" I sell is unique. Each is a physically different vehicle, with wildly varying purchase and sale prices. My method to record a full transaction from purchase to sale is as follows. The original purchase transaction is categorized into my Inventory Assets. When the vehicle sells, I create a journal entry that credits my Inventory Asset for the purchase price, and debit COGS. 

2 replies

A
AileneAModerator
Moderator
February 14, 2022

You're on the right spot, AndrewY.  

 

Thank you for reaching out to the Community. Let's go ahead and check your balance sheet and P&L to ensure they match. However, If not, let's undo the one you categorized then add it again and re-categorize.  

 

Please note that when you sell an item it will move the inventory asset to COGS(expense). It could be the reason why it shows as a Debit. Also, here's how to make changes to an inventory quantity adjustment you made.  

 

I still encourage seeking help from your accountant. He/she could guide you which option to take based on your recording practice and business needs.

 

Just let me know if you have other questions. You take care and have a great day!

Rainflurry
Rainflurry
Level 11
February 14, 2022

@AndrewY 

 

It sounds like you're on cash basis.  When you buy inventory on cash basis, the cost of that "inventory" will hit the P&L when you pay for it, not when you sell it. 

 

If you want to have a vehicle in inventory, you should be on accrual basis and enable inventory.  Setting up each vehicle purchased as a separate inventory item is quick and easy.  That way, a vehicle will be booked to inventory when purchased (debit inventory, credit cash).  When sold, it will be booked to income (debit cash, credit income) and COGS (debit COGS, credit inventory).  That will also eliminate your need to do a journal entry when you sell a car because it will all book together (cash, income, COGS, inventory) when you create a sales receipt with that vehicle item.

 

 

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