Migration issue - Cost of Good Sold account is way off after migration with inventory

Run the Verify/Rebuild Data utility in the condensed file. Did you encounter any error message?

I appreciate you sharing your concerns in detail, DS127. Dealing with a significant difference in your Cost of Goods Sold (COGS) after migrating is challenging. I'll outline below the necessary steps to correct this.

Keep in mind QuickBooks Online follows the First in, First out (FIFO) for inventory accounting. This method means that the earliest inventory items purchased are considered sold first.

Once you migrate, you'll need to set the FIFO start date. The system will then recalculate the inventory based on this date and make the necessary adjustments.

Incorrect cost and initial quantity during the setup will result in an inaccurate value in the inventory asset account and COGS. Here's a step-by-step guide on how to correct this:  

1. Hover over the Gear icon. Select Products and Services.
2. Locate the item, then press Edit from the Action column.
3. Pick Starting Value.
4. Click Got it.
5. Enter the item's correct quantity and cost.
6. Hit Save and Close.
    

For more detailed information, check out this article: What is FIFO and how is it used for inventory cost accounting?

Regarding the tax returns, you can consider discussing the options with your CPA to determine the best approach for your situation.

Moreover, you can visit these resources as a guide to managing your inventory and account effectively:

• Use reports to see your sales and inventory status.
• Impacts of inventory tracking on the Balance Sheet and Profit & Loss reports.
• Getting Started in QuickBooks Online. 

Correcting the starting value can indeed help correct your COGS. It's essential to pick an approach that aligns with your financial reporting needs. If you have any additional queries, feel free to share them with us. Stay safe, DS127! 

Hi. Yeah, I did all that stuff before I converted it.  Their inventory in QBD was just a mess! Thanks.

ShyMae -

good idea.  

Another thought I had...maybe I just turn off inventory tracking until we actually have a physical count and thus the true values?

What would the impact be if I did this?

The products are in QBO now basically so that they can put them on invoices so I don't want to lose the massive product list with all the prices. Re: valuation, all we really need is a value for the end of the year to complete the tax returns (yes, we ARE the CPA's on this) :).

Thoughts, anyone?

Thanks!

I got one part of the solution going with the client.  I thought I would update here in case anyone in the future can benefit from this.

They have a ton of products that need to go on invoices but they don't actually track for inventory. So....Voila! Client has agreed to go thru the list and make any of those "non-inventory items".  And she will deactivate items she's not using. So that will greatly help going forward.  And we will fix the valuations / may use starting quantity at the end of the year when physical inventory is done. So that fixes the inventory problem.

I still have the huge COGS number to deal with.  Still puzzling over best way to do it....

You can run the comparative trial balance reports to fix the discrepancies.

Hi there, @DS127.

Let me help you handle your inventory concerns in QuickBooks Online.

Turning off Inventory Tracking while having an Inventory type of product isn't possible. However, if you adjust your products to zero quantity and make them inactive, you can turn off the tracking feature.

Since you've mentioned that you don't want to lose your product list with all their prices, I recommend adjusting your inventory quantity only. If you modify your inventory quantity without legitimate transactions, QuickBooks will create an Inventory Adjustment transaction to help you correct the offset amount in your Cost of Goods Sold account. You can refer to the steps provided by my colleague above in adjusting your inventory quantity.

Below are the image samples of the account that will show in your Profit and Loss report and the transactions that impacted the adjustment.

Furthermore, you can also consider reading the article on how inventory tracking impacts your Balance Sheet and Profit & Loss reports in QuickBooks Online.

Additionally, you can also learn how to use reports to see inventory status and performance in QuickBooks Online.

Feel free to leave a reply if you have additional concerns besides inventory and COGS concerns in QuickBooks Online. I'm here to assist you any time.

@DS127 

"I still have the huge COGS number to deal with. Still puzzling over best way to do it...."

Is the $7M COGS discrepancy all in 2024?  Is it overstated or understated?  If your COGS expense is off $7M, then you must have another account(s) that are off by $7M as well in order for the balance sheet to balance, yes?  What other account(s) are off?  

Hi Rainflurry

Yes, QBO made JE's for lots and lots of products when it did the conversion.  It's bc I set a starting date on the inventory for QBO to be this year, 1/1/2024.  So QBO JE'd the differences to Opening Balance Equity and left the huge COGS amount on the P&L. Most of the products had negative balances so that's why the big number.  The Actual COGS ytd from QB Desktop is only about $900k (assuming that was correct!).

I made the adjusting entry to get the COGS correct for 2024 (other years don't matter; the tax returns are done) to OB Equity.  I just looked at OBE and good grief, adding what ended up to be an $8 mill adjustment increased the OBE which was already at $8 Mill so now we have $16 mill.  I'll just have to explain to the CPA (my boss) that there is no other way around this.  Bummer, I was hoping that my JE would offset what QBO did but instead it added to the balance.  OBE is the only "throw away" account we have (speaking as an accountant here) to get numbers OUT of the system (meaning, not affecting assets/liabilities nor income/expenses).  I never use it, except in cases like this. OBE amount gets moved into the main equity account by QBO in the new year, I believe. 

Not the ideal, but what do we do when the client's books regarding all of this were a mess to start with.   At least I can confine all the damage in one place - OBE.

Hope this helps people understand. 

thanks

@DS127 

"I made the adjusting entry to get the COGS correct for 2024 (other years don't matter; the tax returns are done) to OB Equity.  I just looked at OBE and good grief, adding what ended up to be an $8 mill adjustment increased the OBE which was already at $8 Mill so now we have $16 mill."

Something still doesn't sound right.  You didn't mention if COGS was overstated or understated.  If COGS was overstated, the JE should have been a debit to OBE and a credit to COGS, thereby reducing both OBE and COGS.  Why did OBE increase with the journal entry (JE)?  What account was debited on the JE?  

Yeah it's crazy isn't it.  QBO made the huge entry during the conversion and charged it to Opening Balance Equity (the number came from all the $$ adjustment entries on those 1000 products that it put to COGS and OBE. The COGS account came in as a huge negative number. So to get the COGS YTD to match between QBD and QBO, I debited COGS and credited OBE.  

Well, we knew it would be a mess when we started. 

So now everything matches as of the conversion date between QBD and QBO with the big number in OBE.  And of course the inventory is also not right but we knew to expect that...can't do much until we get the physical count numbers.  At that point I will have the client update the Products and set the start date "for real" for tracking.

Thanks for your feedback

@DS127 

"QBO made the huge entry during the conversion and charged it to Opening Balance Equity (the number came from all the $$ adjustment entries on those 1000 products that it put to COGS and OBE. The COGS account came in as a huge negative number."

If QB made an entry to create negative COGS, that must have been a credit entry to COGS.  If it was offset to OBE, then that must have been a debit entry to OBE which would reduce (not increase) OBE as you mentioned.  A JE cannot decrease COGS and increase OBE because both are credits.  There must be another balance sheet account that was hit.