How Record Inventory Purchases and COGS

Good day, @ellochewy. I'd be glad to help you record your inventory purchases for it to affect your Cost of good sold  in QuickBooks Online (QBO).

Depending on your subscription if you're on QuickBooks Online Plus or Advanced, you can add everything you buy and sell in your inventory into QuickBooks. Then, you can let QuickBooks update the quantity on hand as you work so you don't have to do them. Once it's set up, it's easy to track inventory in QuickBooks and products to sales forms. To  begin, you'll want to turn on the inventory tracking feature. Here's how:

1. Go to the Gear icon and select Account and settings.
2. Select the Sales tab.
3. Select Edit ✎ in the Products and services section.
4. Turn on Show Product/Service column on sales forms.
5. You can also turn on price rules if you want to set up flexible pricing for the things you sell.
6. Turn on both Track quantity and price/rate and Track inventory quantity on hand.
7. Select Save and then Done.

Refer to this article for more information about how to set up and track inventory in QBO: Set up and track your inventory in QuickBooks Online.

To track what you receive from your vendor, you can create a bill from the purchase order if you'll pay your vendor later. However, if you paid your vendor on the spot you can create a check or an expense from the purchase order.

In addition, when categorizing your purchases in your transaction history, you can categorize them as inventory. Record as transfer is when you move money  or transaction from one account to another.

Once done,  you can create either an invoice or sales receipt so your COGS ( Cost of Goods Sold) will be affected whenever an item gets sold. Before sending a sales transaction, you'll have to create an account to track your inventory value. Let me guide you, here's how:

1. From the Accounting tab select Chart of accounts.
2. Select New.
3. Choose Current assets from the Account Type drop-down.
4. Select Other current assets from the Detail Type drop-down.
5. Click Save and Close.

Then, create an account to track your cost of goods sold:

1. On the Chart of accounts page, click New.
2. Choose Cost of Goods Sold from the Account Type drop-down.
3. Select the closest type of Cost of Goods Sold that matches your situation from the Detail Type drop-down. If you're not sure, use Other Costs of Service - COS.
4. Click Save and Close.

When your done, you can proceed to create a sales transaction.

Refer to this article to learn more about how QuickBooks Online calculates COGS: Cost of goods sold: How to calculate and record COGS.

If your subscription is QBO Simple Start or QBO Essentials, you can track your inventory manually. Feel free to refer to this article for the steps: Track inventory manually in QuickBooks Online.

You can also reach out to your accountant. This way, they can give an advice on what's the best way to handle it.

I've got you these handy articles in case you'd like to see your sales and inventory status: Use reports to see your sales and inventory status.

Our door is open 24/7 if you need further assistance with handling your inventory purchases in QuickBooks Online. You're also welcome to post here again if you have any additional QuickBooks-related concerns. Rest assured, our team of dedicated experts is always ready to help you anytime. Thanks for choosing QuickBooks. Take care, and have a great week!

Hi,

Thanks for your help. I'm going to be recording inventory manually in my Quickbooks account. 

Per my original question:
When I make inventory purchases, I understand that these should be recorded as an asset under the Inventory chart. When categorizing these purchases in my transaction history, should I "record as transfer" to inventory or "categorize" as inventory? What is the difference between the two?

Can you please help with this?

Thank you

Hello, ellochewy.

I'll provide more information about recording inventory purchases and assist you in managing your inventory items.

QuickBooks automatically adds two accounts to your company file's Chart of Accounts when you create your first inventory item. These are the following accounts:

• 12100 - Inventory Asset - Other Current Asset
• 50000 - Cost of Goods Sold (COGS) - Cost of Goods Sold

When you purchase an inventory item, you can create a Bill, Check, or Expense transaction to record them. This will debit the Inventory Asset account and credit your Account Payable (A/P), bank, or credit card account. 

On the other hand, the inventory Cost of Good Sold (COGS) is affected when inventory items are sold on invoices or sales receipts. You don't have to make a journal entry since creating an invoice or sales receipt will credit the Inventory Asset account and debit the COGS account.

For your reference, you can read this article: Understand inventory assets and cost of goods sold tracking.

In regards to categorizing your purchases, you can select record as transfer to inventory if you transferring inventory items from one location to another. Then, you can categorize it as inventory if you want to group or organize your inventory item to easily track which product is popular or best selling. Refer to this resource for more insights: Group your products and services into different categories.

In addition, I've included this material to learn about adjusting inventory for future reference: Adjust inventory quantity on hand in QuickBooks Online.

Should you have any other concerns regarding inventory purchases or COGS, let me know and I'll help out again. Have a great day.

Hello, I manually add incoming inventory items as Inventory Asset. 

When I create an Invoice for a client and categorize the item as Product Sales, the total sales amount is automatically credited to Inventory Asset rather than just the cost of the item. 

I.e., the item cost $10 and I sold it for $20. Created the invoice through QBO for $20 and QBO automatically credits Inventory Asset $20 rather than $10.

This skews my COGS. How can I prevent this from happening? Is this is a default setting with no ability to switch off? I would rather not have the Invoice automatically credit Inventory Asset with the wrong amount and do it manually (correctly) at the end of the month.

Thank you for your inquiry to the Community. We appreciate your decision to partner with QuickBooks Online (QBO) to manage your business operations. 

To provide you with the appropriate solution for your concern, we kindly request that you provide us with additional details regarding the invoice transaction. It has come to our attention that the item cost for your invoice in QuickBooks is reflecting an amount of $20, whereas it should be $10. To assist us in identifying any discrepancies, we kindly request that you furnish us with a screenshot of the transaction journal for the invoice created. This will enable us to ascertain the root cause of the issue and take the necessary steps to resolve it. 

To view the transaction journal:

1. Open the invoice in question.
2. Select the More option below.
3. Choose Transaction Journal.

You may find it beneficial to use the following articles, which can aid you in the monitoring and management of your inventory:

• Use reports to see your sales and inventory status
• What is FIFO, and how is it used for inventory cost accounting?
• Can I track inventory manually in QuickBooks Online?

We're looking forward to your response. Our team is always eager to provide you with the help you need. We wish you a prosperous year ahead with QuickBooks!