I received some inventory at no cost because a vendor made a mistake on a previous shipment. I did not pay for this so when I write up the item as a starting balance it adds to the inventory asset and the opening balance equity account on the balance sheet. Is this correct? I was told I could do a journal entry to reverse out the OBE and show it as a member contribution instead, but I don't know if that is correct either. I understand that it would add to my inventory asset, but it seems odd to have this amount as equity to me. If I purchased the item it would only hit inventory asset, and the get expended as COGS when I sell it. It would never show as equity. What happens when I sell this inventory, won't the equity still be there. It seems like this may never go away.
Thanks for reaching out to the Community. The best method to record this would be to enter a Vendor Credit, then enter your Bill to receive the inventory and apply the credit to that Bill. I've included the steps below to have you entering this like a pro in no time.
Go to New +, then Vendor credit or Receive vendor credit.
In the Vendor drop-down, choose the vendor.
Enter the Category details for the total value of the inventory you've received.
Click Save and close.
Navigate to New +, then Bill.
Fill out the details of the bill under the Item details section with the Inventory items received.
Click Save and close.
Now, let's go to New +, then Pay bills or Pay bill.
Choose the bill you just created from the listed. You'll see the available credit with this vendor in the CreditApplied field.
Complete the rest of the fields like you normally do.
That's it! I also recommend checking out the following resources for more information on receiving inventory in QuickBooks Online: Receive inventory
Let me know if you have any additional questions, I'll be here to help. Have a good one.
Adjusting the Opening Balance Equity can potentially change the amounts in QuickBooks and thus total a different amount on the tax return. If that's the case, you'd want to get in touch with your accountant to ensure this is handled smoothly, as they have the tools and resources to make sure you don't have any issues with this in the future.