What to do if an item was added as an Inventory type but should really be a Non-Inventory item? What is the best practice for fixing quantity on hand, etc.?

You'll need to create a new item, @abid.

Inventory items can't be converted to another type. QuickBooks Online (QBO) only allows you to change the Service and Non-inventory items from one type to another.

I've got you this article that you can read for more details (read Which Product and Service types can I change? section): Change Product and Service types.

On the other hand, the best practice to fix the quantity on hand of your item is to manage your inventory. An example of this is to track your inventory. This way, you'll know how many items you sold and how many are on hand. Let me guide you how.

In your QBO:

1. Go to the Gear icon.
2. Select Account and Settings.
3. Select Sales.
4. Select the Edit ✎ icon the Products and services section.
5. Turn on Show Product/Service column on sales forms.
6. Turn on both Track quantity and price/rate and Track inventory quantity on hand.
7. Select Save and then, click Done.

Here's an article you can read for more details: Set Up and Track your Inventory.

I'm also adding this great article that can help guide you on how adjust inventory quantity on hand in QuickBooks Online.

Don't hesitate to reach out to us if you have other concerns. I'll be here to help