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Level 3

Inventory at no cost

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.
5 Comments 5
Michael K

Inventory at no cost

Hey there, @hello32.


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.


  1. Go to New +, then Vendor credit or Receive vendor credit.
  2. In the Vendor drop-down, choose the vendor.
  3. Enter the Category details for the total value of the inventory you've received. 
  4. Click Save and close.

  5. Navigate to New +, then Bill.
  6. Fill out the details of the bill under the Item details section with the Inventory items received.
  7. Click Save and close.

  8. Now, let's go to New +, then Pay bills or Pay bill.
  9. Choose the bill you just created from the listed. You'll see the available credit with this vendor in the Credit Applied field.
  10. 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.

Level 3

Inventory at no cost

this happened in a previous year and I just caught it. It’s already recorded as OBE. How do I correct it at this point?

Kendra H
QuickBooks Team

Inventory at no cost

Hello, @hello32.


Thank you for following up on correcting the OBE account in QuickBooks Online.


Here's how to correct the opening balance:

  1. Select the Gear icon.
  2. Choose Chart of Accounts.
  3. Click on the correct account, then View Register.
  4. On the Filter icon, pick the drop-down arrow and enter in Opening balance, then go to Apply.
  5. If it shows up, click the transaction, choose Edit.
  6. On the deposit transaction screen, select More  at the bottom and click Delete.
  7. When you're ready, pick Yes.

When removing checking out of opening balance equity, you'll need to consult with an accountant about the process to ensure your books are accurate.


That should do it. If you have any more questions or concerns, don't hesitate to comment below. Have a good rest of your day!




Level 3

Inventory at no cost

I already filed taxes for that year. If I reverse that entry won’t I have to submit an amended return?

Michael K

Inventory at no cost

Thanks for reaching back out, @hello32.


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.


If you need to find an accountant, you can check out our FindAProAdvisor site.


If you have any other questions at all, feel free to let me know. I'll be here to help you succeed.

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