How can an item never sold appear under COGS?

Thank you for the detailed information, Repurposed.

I can share some information about how inventory COGS affects your report. Normally, inventory COGS is only affected when you sell inventory items on invoices or sales receipts. 

After selling an inventory item, run the Transaction Journal report for the invoice or sales receipt. You'll see that it credits the Inventory Asset account and debits the COGS one.

In your case, the bill is force to adjust the Inventory Asset account and the COGS account. This happens when you sell inventory that you do not have. Use this article the detailed information: Understand inventory assets and cost of goods sold tracking. It also shares how to compute the average cost and know which report will help with inventory management.

If there's a need to adjust the item's quantity, check out this article: Adjust inventory quantity on hand in QuickBooks Online. It guide you through the steps.

Don't hesitate to leave a comment below if you need more help with this. I'm always around to provide the information that you need. May your day be wonderful as you are.

Hi @MaryLandT,

Thanks for the reply, but I don't understand how this applies to my situation.

>> This happens when you sell inventory that you do not have. <<

As I stated, the inventory items in question have never been sold. Never ever. Not before I had inventory and not after I had inventory. Each item has been "touched" in the system exactly once, when I entered the bill. I received 12 of the item. I have 12 of the item. If there has not been a sale or adjustment, at what point was Cost of Goods Sold adjusted?

Let's see if this makes it clearer...

This is the item in question. Note that it was received into inventory on 11/17/22. See that I am showing all dates. We've never sold or adjusted the inventory for this item.

When I run the P&L, this item does not appear anywhere on the Sales of Product Income. This is as I would expect, as the item report shows we haven't sold any.

In the Cost of Goods Sold section of the P&L, this is what I see:

The above is the COGS filtered for that one item.

One correction to what I said earlier: I originally only saw the line that says $3.88. I now see there are two lines, totaling $53.10, which is what we paid for this line item. So the amount on the COGS is what I paid for the item, but if I didn't sell any, why is it showing up on the COGS? COGS is Cost of Goods SOLD.

Shouldn't the COGS show only items that were actually sold?

Thank you for coming back to us, @Repurposed.

In QuickBooks Online (QBO), accruals are purchases you have been invoiced for but have not yet been paid or sales you have fulfilled. But the customer has not yet paid.

In accounting, a business's net income is impacted by accruals even if no cash has changed hands.

I've also added this link to get more ideas about the difference between Cash and Accrual basis for QBO and how to change the method on a report: Choose between cash and accrual accounting methods in reports. 

If you have further questions or concerns, feel free to reach back out anytime. Stay safe.

Thanks, @Maybelle_S,

The part that confuses me is that I'm told (by my accountant and more experienced friends who own similar businesses) that I should be using cash accounting, but apparently when you track inventory you have to use accrual accounting only for certain things, most notably COGS.

I don't understand it, but I accept it. I'm marking my response as the solution to close this thread.

Hello Reporpused,

I have reviewed the solution you’ve shared and it's correct and accurate. Thank you for sharing your inputs to help address the issue.

We love to see members supporting one another! Have a great day.