adding manufactured product to inventory

If you are building to order, you are right you do not use inventory and do not track the items

If you buy raw materials/things and stock it, that is inventory and yes you do track it

QBO does not do manufacturing, unlike desktop it does not have an assembly item that does just what you describe.

create your finished product inventory item if necessary
create a cash type bank account called WIP
create vendor called inhouse

in real life make your finished product, noting how many of what items were used, and how many of the finished item was made

In QB

1. use inventory adjust, set the adjusting account to the WIP bank account and lower the qty of all items used
2. if outside processing costs were also paid, use this WIP bank as the expense (reason) for the payment
3. Bring up an expense transaction, select the inhouse vendor
3a. in the item details part, select the finished item, enter the qty actually made, and enter the total amount that is in the WIP bank account
3b. in the account details part, select the WIP account and enter that same amount as a negative number
3c. save the zero dollar transaction

Inventory has been relieved, the costs accumulated in the WIP account, and finally that total cost paid for the finished inventory item and stocked it with qty and item cost, and the WIP bank is zero until you need it again

As Rustler mentioned you can't do manufacturing as described there in QBO. But if you do want to track your product recipes then you can always use an app like Katana to help with that.

Basically means that your material quantities and availability will be adjusted automatically every time you create a product. Your invoices and bills are pushed directly from Katana to your QBO account.

There are really 3 options to do it:

Option 1. Not tracking inventory (by piece) and using manual journals.

1. Recording production:
   D Finished Goods
   C Raw materials
   
   Or, if you track WIP...
   D Work in progress (when materials are used)
   C Raw materials (when materials are used)
   D Finished goods (when production is finished) 
   C Work in progress (when production is finished) 
   
   
2. Once invoiced and shipped:
   D Cost of goods sold
   C Finished goods

Option 2. The workaround, what Rustler described.

The workaround actually performs the same transactions like the above, but without doing manual journals. 

Option 3. Choose an inventory or a manufacturing app, that can do it.

In the QuickBooks app store there are inventory apps that support light assembly (simply converting raw materials into finished goods), like SOS Inventory, and several apps for manufacturing (in addition, calendar and capacity scheduling, MRP, shop-floor control), like MRPeasy, depending on depth/complexity required. They sync automatically with QBO.

Hi Rustler,

We don't track the assembly items as items, we enter the expense invoice and record to COGS expense account.

Question1: Should I record this entry to Inventory instead of COGS

Question2: What journal entry should I do instead of your step 1 and 2? 

Thank you for help!

Fabiana

This is a great work-around. But, I could use a bit more guidance on including other costs, like labor and other overhead.

I'm imagining a scenario like this:

Buy Labor (that will eventually be a direct cost of assembly)

Payroll Expense: debit + cost of labor

Bank: debit - cost of labor

Use Labor in Production

WIP bank: debit + cost of labor

CONFUSION (retained earnings? income account? Payroll Expense?) 

I don't want to take away from my payroll expense and put it in WIP, as the bosses like to see how much we spend on that kind of thing. 

I am tempted to credit Retained Earnings, but maybe an income account would be better for including the cost of labor in the WIP?

Apologies if I've gone in a completely wrong direction.