What Is the Inventory Asset Account in QuickBooks Desktop, and How Does Inventory Post to Cost of Goods Sold?

Before you start

• This guide describes how QuickBooks posts inventory, as Intuit's help articles explain it. How you set up the accounts is a decision for you and your accountant.
• Inventory has to be on: Edit > Preferences > Items & Inventory > Company Preferences, then Inventory and purchase orders are active.
• To see the postings on any saved transaction, open it and press Ctrl+Y. QuickBooks opens its Transaction Journal.
• When you compare the Balance Sheet with inventory reports, use an accrual Balance Sheet for All dates, as Intuit's steps do.

The accounts an inventory item uses

How each transaction posts

Intuit's adjustment article puts an item's total value at its average cost multiplied by the quantity in stock. To compare costing methods, see Average cost vs FIFO in QuickBooks Desktop.

Step 1: See which accounts an item uses

1. 1Go to Lists > Item List and double-click an inventory item.
2. 2In the purchase and sales information, find the COGS Account and the Income Account.
3. 3Under Inventory Information, find the Asset Account.
4. 4Assemblies show the same fields, with their own Asset Account under Inventory Information.

Step 2: See how a sale posted

1. 1Open a saved invoice or sales receipt that sold an inventory item.
2. 2Press Ctrl+Y to open its Transaction Journal.
3. 3Find the Inventory Asset and cost of goods sold lines. Intuit notes they never appear on the form itself.
4. 4To see the transactions behind an item's value, go to Reports > Inventory > Inventory Valuation Summary and double-click the item.

Step 3: Find cost of goods sold that came from bills

Cost of goods sold normally comes from sales. A bill can post to it when an item was sold before its purchase was entered. The bill then carries the difference between the assumed cost and the real one.

1. 1Go to Reports > Accountant & Taxes > Transaction Detail by Account.
2. 2Select Customize Report and set the dates you want to review.
3. 3On the Filters tab, set Account to your cost of goods sold account, then select OK.
4. 4Look for bills, checks and credit card charges. Intuit says corrections from selling stock you didn't have yet show up here.

To stop those corrections at the source, see How to fix and prevent negative inventory in QuickBooks Desktop.

Enhanced Inventory Receiving and the Inventory Offset account

Enhanced Inventory Receiving is a QuickBooks Desktop Enterprise feature, and you can't turn it off after you turn it on. It adds an Inventory Offset liability account that sits between item receipts and bills.

• The item receipt adds the stock. It debits Inventory Asset and credits Inventory Offset, and doesn't affect Accounts Payable.
• The bill debits Inventory Offset and credits Accounts Payable. Bills no longer add stock.
• Once both are entered, their amounts clear out of Inventory Offset.
• Items entered straight on a bill still post to Inventory Offset. Intuit says to enter the item receipt, then the bill against it.
• If the balance looks wrong, look for a vendor whose Inventory Offset entries don't net to zero. An item listed an odd number of times is missing its receipt or its bill.
• Checks and credit card charges still add stock and pay for it in one step.

For setup and the other changes it makes, see How Enhanced Inventory Receiving works in QuickBooks Desktop Enterprise.

Why the Balance Sheet and inventory reports can differ

The Balance Sheet reads accounts, while the inventory valuation reports read items. Anything that hits Inventory Asset without an inventory item shows on the Balance Sheet only. Typical causes are expense lines coded to Inventory Asset, journal entries to it, and adjustments that use it as the adjustment account. Inactive items with value also count on the Balance Sheet but not on Inventory Valuation Summary. We walk through the fix in How to fix an inventory valuation mismatch.

Where QuickBooks Desktop leaves the work to you

• Someone has to make sure every inventory purchase uses the item on the Items tab, not an account on the Expenses tab.
• Journal entries to Inventory Asset bypass items, so the reports drift apart. Intuit's fix is to redo them as inventory adjustments.
• With Enhanced Inventory Receiving on, every bill needs its item receipt, or Inventory Offset keeps a balance.
• Sales entered before purchases move cost corrections onto bills, where they're easy to miss.
• How you set up inventory and cost of goods sold accounts is an accounting decision for your accountant.