Hi there, edc9500.
I'm here to share some information about how inventory works in QuickBooks Desktop.
You're right. QuickBooks Desktop Premier uses the Average Cost valuation method to determine the value of your inventory and the amount debited to COGS when you sell inventory. It will only take the last purchase of on-hand stock and prior purchases in order until all quantities are accounted for. Then, post the average cost once the inventory item is sold.
Additionally, we must specify an Inventory Asset account and a Cost of Goods Sold Account upon setting up inventory items. When we buy inventory, the cost is posted to the Inventory Asset account. When the item is sold, in the background, QuickBooks pulls the cost of the product out of the Inventory Asset account and posts that amount to the Cost of Goods Sold account.
Currently, the FIFO costing and Lot tracking options are unavailable in the Premier version. You'll want to consider upgrading to QuickBooks Desktop Enterprise and subscribing to Advanced Inventory to be able to use these features:
- FIFO costing
- Lot tracking
- Lot numbers
- Multiple location inventory
Once you've switched to FIFO costing, QuickBooks will compute inventory values based on the assumption that the first inventory items received are the first sold.
Feel free to read these articles to learn more about how QuickBooks handles Cost of Goods Sold (COGS) account and its effect on your financial reports:
You can always find me here if you have follow-up questions. Assistance is just a post away.
