Hello there, GATStore1. Let me share some details about how inventory affects your Cost of Goods Sold (COGS).
Typically, inventory COGS is only affected when you sell inventory items on invoices or sales receipts. When you sell an inventory item, run the Transaction Journal Report for the invoice/sales receipt, and you see the Sales/Accounts Receivable transaction. You'll also notice the Inventory/COGS transactions, which credit the Inventory Asset and debit the COGS.
However, if you sell inventory you do not have, you can force the next bills, checks, or credit card charges to adjust the Inventory Asset account and the COGS account. The amount on each side of the Inventory/COGS transaction is the Number of Items Sold x Average Cost of the Item.
Additionally, QuickBooks uses the weighted average cost to determine the value of your inventory and the amount debited to COGS when you sell inventory. The average cost is the sum of the cost of all of the items in inventory divided by the number of items. See the sample below:
- You acquire a widget for $2.00, resulting in an average cost of $2.00.
- If you obtain a second widget for $1.50, the average cost becomes (2 + 1.5) / 2 = 1.75.
- Upon selling a widget, the inventory/COGS transaction debits COGS for $1.75 and credits inventory for $1.75.
- By purchasing another widget for $2.00, the average cost is now (1.75 + 2.00) / 2 = 1.88.
Alternatively, to gain more information about the items you buy and sell and the status of your inventory. This article will show you which reports you need to run: Use reports to see your sales and inventory status.
Don't forget to mention my name if you need more help with your inventory. I'd be right back. Have a great day!
