Hi all! I gave a customer items from inventory (as gifts) It's a small business so it's always obvious when im missing items. How do I book this? Inventory shrinkage?

Good day, leelah_sxm-hotma.

I'm here to help you with how to handle this in QuickBooks Online.

You'll want to write off the inventory item used as a gift to a customer. Before doing the process, I suggest consulting an accountant on what account to use to ensure your books are accurate. 

First, create an expense account, then an invoice for the item.

To create an expense account:

1. Go to Settings and select Chart of Accounts.
2. Select New.
3. For Account Type, select Expenses.
4. For Detail type, select Advertising/Promotional.
5. Enter the name (ex. Promotional/Samples-Not for Sale or Gift).
6. Select Save and close.

To create an invoice for the item:

1. Click + New and select Invoice.
2. Enter the required fields.
3. Select Save and close.

Next, run a profit and loss report on the Accrual method to see the amount you need for creating a journal entry. Here are the steps:

1. Go to Reports.
2. Search for and open the Profit and Loss report.
3. Enter the invoice date.
4. For the Accounting method, select Accrual.
5. Select Run report.
6. Identify the amount of Income and Cost of Goods you need to adjust.

Finally, create a journal entry to remove the income, credits the customer in A/R, and credit the Cost of Good Sold to record the Expense. You can refer to this article and go directly to creating a journal entry and applying the credit note: Write off inventory items.

That's it! Let me know how it goes. I want to make sure this is taken care of.

Okay. I did it exactly how I was told but for some reason, my net earnings ended up with a negative number, which is the total of my COG for the items in particular that i gifted.

the 3rd line auto calculated but I changed it to the “write off” as I was told. 

Thanks for getting back, @leelah_sxm-hotma. Writing off using an expense account when purchasing an item gave you the negative total. 

I'd recommend clicking the COGS amount to bring up the transaction and drill down the report. Then, change the item to an income account and update past transactions. 

Here's how:

1. Go to Settings menu, then select Products and Services.
2. Under the Action column of the appropriate item, select Edit.
3. From the Income Account drop-down, choose the correct account.
4. Select the Also update this account in historical transactions checkbox.
5. Click Save and close.

Generally, COGS is affected only when you sell the items. You can check out this article to learn more about inventory assets and COGS tracking in QBO.

To make sure your books are accurate, I'd also suggest to check with your accountant.

Come back to me if you need more help. I'm always around to guide you.