average cost in P/L

Hello there, hongkonghelmut.

I’d be glad to help change the arrangement of the information shown in your Profit and Loss report. However, I just need more information on what you’re experiencing to ensure the best solution.

What specific account did you select in the Filters tab? May I know if you run the Transaction Detail by Account for a specific category in the Profit and Loss report?

I also appreciate it if you can provide a screenshot of the report. This is to give a clearer view of what’s happening to the statement.

Thank you in advance. I look forward to hearing back from you hongkonghelmut.

@hongkonghelmut 

Average cost is calculated by taking the average of the actual cost you paid for your inventory.  Are you saying that it is many times below the current cost?  You can't change it to a user-defined cost.  The IRS only allows specific methods for valuing your inventory (See IRS Publication 538).

my profit and loss report ALWAYS uses average cost. I can change it to what ever I want. it always uses average

I just go to the standard report center and select profit/loss and voila, it is using the average cost

Hello there, @hongkonghelmut.

I'm glad you're able to figure out the resolution of your reporting concern and for sharing it here in the Community. If there's anything else that you need or if you have any other questions feel free to post here anytime.

Thanks for being the best part of QuickBooks, and have a lovely day!

I don't want to change it, I want that PR is using my cost.

I am having the same issue as hongkonghelmut.  I need QuickBooks to use the actual cost not the average cost.  No matter what the IRS regulation is, I need to know exactly what I am making as far as the gross margin is concerned.  In my case, I am using Enterprise 2023 for manufacturing.  Are you saying there is no way to have QuickBooks use the actual cost for the reports?  In my case, the average cost is well above or well below the actual cost and thus it is greatly overstating gross margin and also understaing gross margin in a major way.

Can this be changed?  Any ideas would be great!

Thanks for joining this thread, WSEWS03.

I'm here to provide some additional info regarding the average cost in your QuickBooks Desktop reports.

The system does use the weighted average cost to determine the value of your inventory and the amount debited to COGS when you sell inventory. You may want to run the Inventory Valuation Summary Report to determine how the average was calculated. This can be done by:

1. Selecting Reports, then Inventory.
2. Choose Inventory Valuation Summary, then set the dates to All.
3. Double-click the item(s) in question.

The following article provides additional info about understanding inventory assets and cost of goods sold tracking in your QuickBooks Desktop account.

I also recommend submitting feedback to the Product Development Team to let them know you'd like to be able to view the actual costs in your reports. You can share your suggestion by clicking the Help tab and select Send Feedback Online.

Please know assistance is only a comment or post away if you have any other questions. I'll be here to help in any way that I can.

@WSEWS03 

"I am using Enterprise 2023 for manufacturing. Are you saying there is no way to have QuickBooks use the actual cost for the reports? In my case, the average cost is well above or well below the actual cost and thus it is greatly overstating gross margin and also understaing gross margin in a major way."

QB Enterprise doesn't know the actual cost when you have more than one of a particular item in stock.  If you have a quantity of 5 in stock and a customer buys one, QB doesn't know the cost of that one specific item being sold.  All QB can use for cost is either: 1) the average of the 5 (if you use average cost), or 2) the cost of the first item manufactured/purchased/assembled (if you use FIFO).  However, if you only ever have one of an item in stock, the COGS for that item will be its actual cost.  

If you want QB to the have the ability to know the cost of the exact item going out the door when you have two or more of an item in stock, you can set up a separate inventory item for each item in stock, even if they are the same, and a unique identifier for each item being sold.  QB Enterprise, although good, is more of a one-size-fits most/over-the-counter product.  It isn't at the level of an ERP system which allows you to track inventory cost and COGS using the specific identification method, which I think is what you're asking for? 

"If you want QB to the have the ability to know the cost of the exact item going out the door when you have two or more of an item in stock, you can set up a separate inventory item for each item in stock, even if they are the same, and a unique identifier for each item being sold.  QB Enterprise, although good, is more of a one-size-fits most/over-the-counter product.  It isn't at the level of an ERP system which allows you to track inventory cost and COGS using the specific identification method, which I think is what you're asking for? "

You must not be in manufacturing. I have thousands of the same item and creating a new item with a unique identifier is crazy. No one mentioned that if you do an inventory adjustment that too will change the average cost. There is no way in QB to report correctly on the true profitability on an item if you use average cost.

@mphoebus 

"You must not be in manufacturing."

I'm in accounting.

"There is no way in QB to report correctly on the true profitability on an item if you use average cost."

How else would you like "true" profitability to be measured? 

Knowing your profitability requires knowing your COGS which requires capitalizing the cost of inventory when you purchase it.  Well, if your inventory is composed of items purchased at a single point in time and at the same cost, then your average cost is the exact cost of the item.  That's all well and good.  But, how would you know the exact cost of an item sold when your inventory consists of items purchased or built using materials and labor that were purchased at various times and at various costs?  That's where you need to use average cost (QB Desktop/QB Enterprise), FIFO (QB Online/QB Enterprise), or LIFO.  Each method has its positives and negatives. 

I was just pointing out to a user who said "I need QuickBooks to use the actual cost not the average cost.", that the only way to know the exact, actual cost of an item (assuming the cost to purchase/produce all items in inventory are not the same) is by being able to assign the cost of each item purchased/produced to a separate item in QB.  That is obviously impractical for anything other than cars, equipment, etc.  I may be a nerdy accountant but surely I can grasp that...lol