Creating Inventory Items: Income Account question

tanya3 · ‎December 10, 2018

I'm a new user. I'm slightly confused. When creating an "Item," under the drop down of "income account," should I use "proceeds from sale of assets" or "inventory asset"? I was watching a tutorial and I saw that they used "inventory asset" for the income account. To me, it doesn't make sense since it's asking for and income account. So confused. What should I use?

Rustler · ‎December 10, 2018

Inventory and assembly items have three accounts
expense = COGS
income = your sales income account
asset = inventory asset

any video or advice you received showing an asset account selected in the income account selection is wrong.

The inventory help files and video tutorials are helpful. QuickBooks for Dummies, and Business Accounting for Dummies are great books. There is also a lot of information on my blog, and several "How 2" articles on the basics. QB is an accounting program and has a steep learning curve regardless of what the PR says.

In preferences>Items & Inventory>Company tab check mark that inventory & purchase orders are active, when you create the first inventory item, QB will create the inventory asset and COGS accounts, and then go for it in a test file first.

Inventory if mis-entered or mismanaged can be the worst thing to try to correct that there is in QB.

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Gordon · ‎December 10, 2018

Its an Income type account normally called sales as its what you sell, You can name it what you want but normally sales goes to sales but there is no reason why you cannot break it down like "Inventory sales" or "capital equipment sales or "resale sales" etc etc.
However there are also reports that you can use to break down sales if required using other methods.
But its what you want tthat matters and no one knows your business like yourself.

tanya3 · ‎December 10, 2018

Thank Graceman

Rustler · ‎December 10, 2018

Inventory and assembly items have three accounts
expense = COGS
income = your sales income account
asset = inventory asset

any video or advice you received showing an asset account selected in the income account selection is wrong.

The inventory help files and video tutorials are helpful. QuickBooks for Dummies, and Business Accounting for Dummies are great books. There is also a lot of information on my blog, and several "How 2" articles on the basics. QB is an accounting program and has a steep learning curve regardless of what the PR says.

In preferences>Items & Inventory>Company tab check mark that inventory & purchase orders are active, when you create the first inventory item, QB will create the inventory asset and COGS accounts, and then go for it in a test file first.

Inventory if mis-entered or mismanaged can be the worst thing to try to correct that there is in QB.

tanya3 · ‎December 10, 2018

Thank you Rustler. Much appreciated. You make it sound so easy. Funny thing was I saw the video on this site. Anyway, you were a lot of help.

Rustler · ‎December 10, 2018

You're Welcome

Lisa Ferguson · ‎August 28, 2019

Hi,

I understand that QB creates the inventory asset and COGS account, and I can create the income account. What I dont understand is how it gets from inventory asset/COGS to the income account. I am going to try and use the manual method of inventory tracking, so is there a journal entry that i will have to do to get dollars into the income account?

Charies_M · ‎August 28, 2019

Hello there, Lisa Ferguson.

I'd like to discuss to you how Inventory Assets and COGS tracking works in QuickBooks Desktop.

Yes, you're correct. QuickBooks automatically adds two accounts (Inventory Asset and Cost of Goods Sold (COGS) when creating your first inventory item. These items requires an income account.

Since you want to try the manual method of tracking inventory, then here are the accounts you can use get dollars into the income account:

If the item is purchased, use Inventory Asset and Bank. If it's a sale, use Inventory Asset, COGS, Income and Bank.

This article will help you learn more about Inventory Assets and COGS tracking in QuickBooks Desktop.

Of course, I would still suggest consulting guidance from your accountant to know the correct accounts to be used.

You can always let me know if you have other questions or clarifications and I'd be glad to answer for you.

Lisa Ferguson · ‎August 28, 2019

Thank you sooooo much for your prompt response. It was of great help. For now I think I'm fine, but if you wouldn't mind if something else comes up on this matter, I will email you. Thank-you again for your help.

Lisa

edc9500 · ‎September 21, 2020

I don't understand the income account. Our inventory never hits our sales. I get the income for the purchase hitting the bank, but that would be done via A/P, and the income from the sale is done on the invoice, so I don't understand why an inventory item is hitting an income account.

Rasa-LilaM · ‎September 21, 2020

Thanks for following on this thread, edc9500.

When you turn on the Inventory feature in QuickBooks, it automatically adds the Inventory Asset - Other Current Asset and Cost of Goods Sold (COGS) - Cost of Goods Sold. By the time you set up an item, select an income account to easily track the items sold.

Also, income is realized when there’s a sale for the product (recorded on an invoice or sales receipt). QuickBooks then decreases what’s on hand by the amount on the transactions. For more insights on how QuickBooks handles your inventory and accounts associated for an item, see the following guides:

If you have any clarifications or other concerns, click the Reply button and post a comment. I’ll be right here to help you. Have a great rest of the day.

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Creating Inventory Items: Income Account question