Assemblies

The way an assembly works with non inventory or service items is that when you build the assembly QB looks at the cost on the item screen and TAKES it out of the expense account listed on the item screen and adds that cost to the assembly.  That is why the credit happens in COGS.

COGS is supposed to be the cost of the items sold, not the cost of other services, something else to consider.

Rustler,

So then how do I get that expense to come out of Income?  I obviously don't want to be paying taxes on money that isn't being made.

Any update to my question below?

How do you record the cost of the non inventory item when it comes in?  If you are writing a check and putting it in an expense account of any sort, you have already taken the deduction, so putting it into an assembly is "reclaiming" the cost you have already sunk into an expense account.  The easy solution here is to change the noninventory item's expense account to whatever account you put the item into when you pay for it.

@Mark Rhoa 
if you book the item as an expense when you buy it, that is when it reduces net income. If you later include it in an assembly, that expense is removed and net income raises, then when you sell the assembly the total cost of it is posted to COGS, and again net income reduces