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Ram Nilangekar
Level 1

How should I link inventory to purchase to profit & Loss account (currently flowing to balance sheet)

 
1 Comment 1
jamespaul
QuickBooks Team

How should I link inventory to purchase to profit & Loss account (currently flowing to balance sheet)

Hello, Ram Nilangekar.

 

I'd be glad to guide you on how to check and change the account linked to inventory items. I'll also show you how the linked accounts are shown your Profit and Loss and Balance Sheet reports. 

 

When you create an item, it is automatically linked to the Cost of Sales account. If a linked account is incorrect, you can change it by going to the product's settings: 

 

  1. Click the Gear icon, then choose Products and services.
  2. Find the item, then click Edit under the ACTION column.
  3. Change Expense account by selecting another one from the drop-down menu. 
  4. When you're done, click Save and close

 

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The Profit and Loss report shows the income and expense accounts. Normally, there are two accounts that will show up when an item is sold. The item's income account and the Cost of Goods sold. 

 

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When you purchase an inventory, it will increase your inventory asset account. When it is sold, the Cost of Goods account (Profit and Loss) will increase while the asset account will decrease (Balance Sheet).

 

An in-depth explanation about how the inventory is linked and shown the reports: Impacts of inventory tracking on balance sheet and profit & loss reports.

 

Note: The accounting methods (Cash and Accrual) will show the data differently. Depending on your accounting basis, you can switch between methods on the report by toggling them under the Accounting method section. Also, handling inventory accounts might change your books. I suggest reaching out to an accountant so they can show you the proper way to link an account to inventory items. 

 

If you need help managing your sales, inventory items, or pulling up reports, you can visit our articles for guides

 

I'm happy to assist you again if you have other questions with your QuickBooks Online account. Just reply here and I'll be there for you.