Purchase orders posting to COGS

Thanks for posting a question here in the Community, @Karen_21.

Allow me to share with you some information on how the Cost of Goods Sold (COGS) account works in QuickBooks Online (QBO).

To start with, inventory purchases will directly post to the Cost of Goods Sold account. The same thing also happens when these items are sold to a certain customer.

With this, when you run a report on a Cash basis, the COGS account will generate based on the purchases. On the other hand, if you run it on an Accrual basis, it will show up the COGS from invoices when these items are sold. This way, it will not overstate the COGS.

I'll be adding this article to learn more about how the cost of goods sold works in QuickBooks Online: How Inventory Assets and COGS work in QBO?.

Fill me in if you need help with managing your COGS account in QBO. I'll be here to help. Take care always, @Karen_21.

Thanks, @ReyJohn_D! 

Can I confirm that I'm understanding your answer correctly? If I'm understanding correctly, the inventory module will not help users on the cash basis of accounting track and receive inventory - all inventory run through purchase orders will be coded straight to COGS rather than an inventory asset account. We do have retail clients on the cash basis of accounting who have inventory (more switching back, actually, due to the tax law change). Do they need to use  journal entries to record their inventory at year end?

As far as I can tell, the only transactions posting to inventory for my client on the cash basis are those directly coded to inventory - not tracked in the inventory module - regardless of the input method. 

I guess my actual problem is not COGS: this client is on the accrual basis of accounting; their reports lately simply always default to cash basis despite me repeatedly toggling their basis of accounting to see if I can get it to stay accrual. Since I usually immediately switch my reports to accrual, I hadn't really noticed that $37,000 of inventory disappeared when switching to the cash basis of accounting (the client doesn't quite seem to grasp the difference and is usually using cash basis reports). 

@Karen_21 

Cash basis or accrual is just reporting, the major diffence when it comes to inventory is that inventory is not counted as cogs until the invoice is paid (cash basis).

PO's do not post to anything.

So only a bill or a payment for inventory items is what stocks the item with qty and cost.

Then you sell that item, and the qty is reduced and the cost posts to cogs.

If a bill or a payment is posting to cogs, it means you sold that item when you did not have it, the qty on hand went negative. QB used the old cost and posted it at the time, then when you reorder it checks and if the cost is different it makes an adjustment (seen as a bill) to cogs and inventory asset.

You can never ever post anything to inventory asset when you use inventory items, doing so will mess up the inventory asset account on the balance sheet vs the actual total cost of inventory on hand as seen in the inventory valuation summary.

and since you went from desktop to QBO, check this to insure it was done
https://quickbooks.intuit.com/learn-support/en-us/set-up-inventory-lists/set-up-inventory-after-conv...

I'm having a similar issue.

When I purchase inventory from a supplier, QBO records the cost and inventory quantity in my Inventory Assets account.

When I sold items, QBO records this in the COGS account. My COGS account only shows items I've actually sold.

However, when I go to the Profit & Loss Report and click on the COGS line, it shows all my inventory purchases. (It shows the COGS when the inventory is purchased rather than when the item is sold).

So far not even QB support has figured out why there is this major discrepancy.

Reports are generated depending on the Accounting method, Marc-d.

In the Profit and Loss report, if you select Cash, the source of the Cost of Goods Sold will be from purchases. Accrual on the other hand will report when the inventory is sold meaning from invoices.

The amount that is reported depends on how the inventory quantity is generated. Though it has a zero cost yet it was used on a bill or expense, the cost will be generated from both Cash or Accrual.

I'll be attaching these articles as your reference on how we report inventory accounts:

• Choose between cash and accrual accounting methods in reports
• Understand inventory assets and cost of goods sold tracking

Always know that the Community is available 24/7. You can always leave a reply below or post again if you have other questions. Take care!

Thanks!! That did that trick.

I have been on QB Support with multiple agents for at least 3 hours and no one knew this is the issue.

Hello,

I am having the same issue. I am using cash basis reporting and issue is still there. My QBO is accounting for COGS at time of purchase and again at time of sale. What else can I do to resolve the issue. I have checked all my inventory items and they are input correctly. 

My income account: Is sale of product income 

Expense account: COGS

Inventory Account: Inventory not Inventory Assets

I did notice in my account settings that my accounting method was on accrual and not cash. I fixed that and changed it to cash. Is this the reason for the issue and what can be done about it. 

At this point both my inventory count and P&L reports are a complete mess.