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Level 1

Inventory - QB Online or Enterprise

Hi all, appreciate any help/advice I can get....

Bear with me though because Im sometimes not the best at explaining things!!

We are a new small business selling about 30 different SKU's.


Each of these SKU's is made of about 6 or 7 different items (raw materials?)


Are these the correct steps I should follow...

1. Add the Raw Materials items into a WIP inventory account, assigning each item a unique SKU and cost. Also assign preferred vendors and reorder points so that when inventory is low we would automatically produce a PO to the preferred vendor for more of that item.

2. Deplete that WIP Inventory account when shipping the required items to the manufacturer who assembles/builds the final Finished Goods products.

3. Add into QB as a Finished Goods an "Assembly Item" with a unique SKU and cost  (COGS-which would include the cost of all the items required to assemble the finished product) - How do I account for the cost of the Assembly? Should this also be a "Raw Material" WIP Inventory item?

4. When orders for the Finished Goods are received form Customers and the Finished Goods ship we would then deplete the Finished Goods account, increase the COGS and Sales accounts.


We're looking for a way to accurately reflect what inventory we have, not just finished goods but the materials (boxes, cases, labels etc) which we have in our warehouse.


I'm guessing I need QB Enterprise or Premier to add the raw materials into a WIP Inventory account and the Finished Goods as "Assembly Items"...




I dont see QB Online able to handle this complex situation, however Enterprise seems to...How about Premier.

We also work remotely so I'm guessing Enterprise with Hosting is the way to go? Does the cloud based version of Enterprise offer all the functionality of the Desktop version?


Best answer September 27, 2017

Best Answers
Community Champion
9 Comments 9
Community Champion
Level 15

Inventory - QB Online or Enterprise


Yes the cloud based hosting of any desktop version keeps the same functionality as the desktop installed locally

You can not just delete accounts, nothing in QB can be deleted if any transactions exist.  All you can do is make the account inactive to get it off some lists and there is no reason to do that from what you say.

Inventory in QB is kept as an asset and when sold the cost is moved to COGS automatically and inventory is reduced.  Cost is not assigned, cost is what you pay for it, you must enter purchases for inventory items, with qty and total cost per item in order to have an average cost per item.

There is no preferred vendor in QBO, there is in desktop but it has no real function in terms of ordering, you decide who to order from.

In QB you stock raw materials as inventory items, there is no reason to create additional inventory asset accounts.  Inventory asset is a summing account, think of the item names as sub accounts where item qty and total cost is held.  So each item is unique, raw materials or finsihed goods

in QBO and in desktop Pro, this work around for an assembly item works.
Create a dummy bank account called WIP, create a dummy vendor called dummy

When you purchase the raw material(s), use the WIP bank as the expense for the purchase
as you pay the vendor bill for each stage of the process, use the WIP bank as the expense
If the raw material is in inventory, use inventory adjust, set the adjusting account to WIP, and lower the qty of items being used

that accumulates all charges for the process, when the process is complete
"Purchase" the inventory items from the dummy vendor, and pay for it from the WIP bank, that will zero the WIP bank and stock the items in qty and cost per item

Level 1

Inventory - QB Online or Enterprise



Thanks so much for your help. As we're just moving from a very manual, excel based accounting process to QB Online there's so many questions on how we should be doing things, especially the inventory portion, and I think now I realise that QBO may not be able to handle how we want to keep track, classify and report our inventory status.


So whether the items are "raw materials" or "finished goods" it's still an inventory asset, correct? 


We provide the raw materials to a 3rd party to finish assembly of the product, but we still want to track inventory of those raw materials and have reorder points, so we know when we need to order more so that they can assemble the needed amount of finished goods.

The cost of assembly should be straight Cost of Goods correct? Should that be a separate COG account or do I divide the cost by the toal number of finished goods and adjust the cost of each finished good by that amount?

Freight for the shipment of the raw materials also, should that just be classed as a separate account instead of trying to break down the cost of the freight and adjust the cost accordingly for each item?

I guess to simplify my question i should just really ask...My cost for an inventory item is just that, the actual cost of the item? Freight, labor, other costs such as boxes to ship to distributors should be classified as Cost of Goods items but not necessarily specific to each finished good item?


Also, is it standard practice to classify raw materials and finished goods into different asset accounts so we can see the value of each?


In our warehouse we wil always have quantities of raw materials (boxes/labels/plastic cases/retail product boxes) as well as complete finished goods (consisting of those same items fully assembled and ready to sell/ship to our customers). 


Currently in QB Online I just have the finished goods in inventory and the cost associated with that item is calculated from an Excel BOM where we look at actual cost for each raw material item (e.g we order from Vendor A 1000 retail packaging cartons for $1500 - $1.50ea, from Vendor B 5000 ingredients labels for $500 - $0.10ea, Vendor C 1000 blister packs for $1000 - $1.00ea, Assembly cost, frieght cost, etc). Thats how the co-owner sets up his BOM for each Finished Good item. I feel as though he's trying to be too specific allocating cost, but I understand as thats how he determines Net Profit for each item and then contractually splits that profit with the other owner...


Sorry for the ramble.


Thansk Again!!



Level 15

Inventory - QB Online or Enterprise


As  I said in QB each inventory item is unique, and is held as an asset.  Each item has cost.

Invenorey item cost is defined as the all costs to get an item on hand and to get it ready to sell.
So breaking that down,

the cost of the item + cost of inbound shipping + cost of item packaging + cost of any taxes, etc you pay.

Then the cost of a finished item is the cost of all items used to make the finished item, + the bill from an outside process + the costs of shipping the items to the outside processor and back.

Nothing posts to COGS, it is all item cost.  When you sell the item that is when the total item cost becomes COGS>

Outbound shipping to a customer is not COGS, it is an expense as is the packing materials used for outbound shipping.

Level 3

Inventory - QB Online or Enterprise

I don't think you need Enterprise for your level of business. it just a bigger version of premier.   And it's. Premier will work as well on Online.  


Take care with how you set up your inventory. Make sure you are using the correct GL accounts. (Ask your accoutant if you are not sure.)  The inventory doesn't let you change much after you've used them.  

Level 1

Inventory - QB Online or Enterprise

I like your work around but, we purchase raw materials from our credit card and not the WIP bank you referenced.  How do we do this then if that is the case.

Thanks for your help.

Russell Mellen

Level 15

Inventory - QB Online or Enterprise

you do not buy from a credit card, the credit card is the method of payment and has nothing to do with the procedure at all

Not applicable

Inventory - QB Online or Enterprise

Hey @rmel


Glad you endorse the workaround. Would you be able to clarify what your purchase/cashflow process is, just so we can clarify how you're costing things out?

Level 3

Inventory - QB Online or Enterprise

You can handle more complexity with your raw material management using an app like Katana. Basically means that your product recipes are saved, and raw materials are adjusted according to your sales and manufacturing orders.


Your bills and invoices can then be pushed to your QBO account. 

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