Whether you purchase items that you resell to your customers or make the products that you sell to customers, you should always know what your cost is, what you sell the item for and how much you have on-hand. By tracking inventory in QuickBooks, you can do all of this and much more.
Why Tracking Inventory Is Important
Tracking your inventory will help you to stay on top of what you have in stock so that you can ensure you can fulfill any pending or upcoming customer orders. It will also help you to determine whether you are making money or losing money on each product (i.e. profit margin) so that you can decide if it’s worth it to continue to sell an item or just drop it from your catalog altogether.
Benefits of Tracking Inventory In QuickBooks
There are a number of benefits to tracking inventory in QuickBooks. Here are just a few reasons:
- QuickBooks will track the cost of each item you have sold (i.e. cost of goods sold).
- You can track the sale of each product so that you know which items are flying off the shelves versus the items that are collecting dust.
- You can easily check to see what your current on hand quantities are to determine what products you need to place an order with your supplier for.
How to Set Up & Track Inventory In QuickBooks Online
Before we can set up our inventory in QuickBooks, we must turn on the inventory tracking feature.
Here are the steps to set up inventory in QuickBooks Online:
Step 1 – Navigate to Company Preferences
From the Gear icon in the upper right corner, select Account and Settings as indicated in the screenshot below.
Step 2 – Navigate to the Sales Tab
On the left-hand menu, click on the Sales tab as indicated in the screenshot below.
Step 3 – Turn on the Inventory Tracking Feature
Click on the pencil icon located in the upper right corner and then select “On” next to “Track inventory quantity on hand” as indicated in the screenshot below. Click the Done button which will be located at the bottom of the screen to save your changes.
Step 4 – Navigate to the Products and Services List
Click on the Gear icon in the upper right corner and select Products and Services directly below the List column as indicated in the screenshot below.
Step 5 – Create a New Inventory Item in QuickBooks
Click on the “New” button as indicated in the screenshot below.
Step 6 – Select the Item Type
In the next screen, you should see the type of items that you can set up. For the purposes of this article, we will focus on the Inventory item type. However, if you would like to learn how to setup any of the other item types, check out How to setup Products and Services tutorial for step by step instructions.
Step 7 – Enter the Information for the New Item
Below is a screenshot along with a brief overview of the info you need to provide here.
- Name – This is a required field. Enter the name of the item in this field. This field is for your internal purposes only; you will have a chance to enter a different name/description for customers and suppliers.
- Picture – This is an optional field Upload a picture of the item in this field if appropriate.
- SKU – This is an optional field. Enter the SKU for the item in this field, if applicable. An SKU is a unique number that is used to identify a product.
- Category – You can group similar products and services by setting up categories.
- Initial quantity on hand – This is a required field. Be sure that you have an accurate inventory count of each item before you set it up in QuickBooks. Once you save and close out of this screen the quantity field will be grayed out and you will have to enter an inventory adjustment to update the quantity. We’ll discuss inventory adjustments a little later on.
- As of date – This is a required field. Enter the date that you want to start tracking this item’s quantity on hand.
- Reorder point – This is an optional field. Enter the minimum quantity that you want to have onhand. Once you reach this quantity, QuickBooks will send you a notification that it is time to reorder this item.
- Inventory asset account – This is a required field. It is automatically populated by QuickBooks. However, if you would like to track your inventory using a different account, you can do so. Watch how to set up the chart of accounts video tutorial to learn more about setting up a new account.
- Sales Information – In this field, enter the description that you would like to appear on invoices and sales receipts that you send to your customers.
Tip: While this is not a required field, I recommend that you enter a description here to avoid having to do this each time you create an invoice/sales receipt for a customer.
- Sales price/rate – Enter the price that you sell the item for in this field. If your sales price varies with each customer, you can leave this field blank and fill it out directly on the customer invoice/sales receipt.
- Income account – This is a required field. Enter the account that you would like to use to track all sales for this item. Check out our chart of accounts tutorial to learn more about how accounts work.
- Purchasing information – This field is only required if you plan to create purchase orders; otherwise you can leave it blank. Enter the description that you would like to appear on purchase orders.
- Cost – Enter that amount that you paid for the item. This field is optional but I recommend that you complete it so that QuickBooks can track your cost of goods sold.
- Expense account – This is a required field. It is automatically populated by QuickBooks. It is the account that will be used to track the cost of items once you have sold them (i.e. cost of goods sold). You can click on the dropdown to select a different account to track your costs or setup a new one.
Step 8 – Review List of Products & Services Report
Once you have set up all of your inventory items, you can easily run a Products/Service list report in QuickBooks.
8.1 – From the QuickBooks homepage, click on Reports which is located on the left menu bar as indicated below.
8.2 – Click on All Reports as indicated in the screenshot below.
8.3 – Below the Products/Services List, click on the Run button.
8.4 – You should see a report similar to the one in the screenshot below.
What Impact Does Inventory Have on my Financial Statements?
When you create a purchase order in QuickBooks, there is no impact on your financial statements. However, when you purchase & sell the inventory, there are several accounts and financial statements such as your Balance Sheet and Income Statement that are affected.
Below is a summary table of the impact on the accounts and the financial statements.
Tip: One the most important things that you need to do each year is to perform a physical count of each item in your warehouse. While this is not the most exciting thing to do, it will help you to start each year with the correct inventory count and valuation. This is important because it will ensure that your books match what you actually have on the shelf. For more tips, check out how to track & count physical inventory guide.
Below is a snapshot of a sample Physical Inventory Worksheet that you can export to excel or save as a PDF in QuickBooks:
Physical Inventory Worksheet
There are several reports that you should review to help you manage your inventory, we will discuss those next.
What Inventory Reports Are Available in QuickBooks Online?
As we discussed earlier, one of the benefits of managing your inventory in QBO is access to a number of reports. Here are a couple of key inventory reports that you can run in just a few short minutes.
Inventory Valuation Summary Report
The Inventory Valuation Summary report shows the SKU (if applicable), quantity, total asset value and the average cost of all of your products. QuickBooks Online uses the FIFO method of inventory to calculate the inventory value. FIFO (First In First Out) means that the inventory that was purchased first is the first to be sold. Check out FIFO to learn more about this inventory method.
Sales by Product/Service Summary Report
The Sales by Product/Service Summary report shows you the total sales, cost of goods sold and gross margin of all of your inventory products. You can use this report to gauge which products are your best sellers.
To access all Inventory reports, click on Reports on the left hand menu bar as indicated below.
Click on All Reports, then Manage Products and Inventory as indicated in the screenshot below.
Now that you know the benefits of keeping track of inventory in QuickBooks Online, be sure to check out our free QuickBooks Course which includes video tutorials on how to track your sales, pay your bills and do all of your bookkeeping in QuickBooks!