Tracking and Managing Inventory in QuickBooks Online

Tracking and managing inventory in QuickBooks Online

Tracking and managing inventory in QuickBooks Online means we need to know what it cost us to get that inventory ready for sale so that when we sell it, we know how much gross profit we made on that item.

When you’re done here, check out Part 2 – Analyzing Inventory in QuickBooks Online

Buy low, sell high!

Wait! That’s not inventory, that’s stocks? Or is it?

When you think about it, it’s the same idea. I buy a product at one price and my hope is to sell it at a higher price.

It’s more than what you paid for the item. It’s the shipping to get it into your warehouse. Any other costs incurred to get that product on the shelf in a warehouse ready to ship once it’s sold.

Until the product is sold YOU own it. This is why it is classified as an asset. Inventory sits on your balance sheet until it’s sold.

Once inventory is sold it moves, at cost from the inventory asset account to the Cost of Goods Sold (COGS) account.

At the same time of sale, you recognize the revenue (what you sold it for) and then you get paid – cash in the bank!

Any expense you incur after this is no longer cost of goods sold. It’s a selling expense. For example if you pay for shipping to deliver the product to the customer. That’s not COGS. It’s a selling expense.

If you sold that inventory for more than what it cost, you now have that revenue in the income section of the income statement. The cost of goods sold is also now on the income statement (transferred over from the inventory asset).

The difference is your gross profit.

Divide that gross profit by the income and that is your gross profit percentage.

Divide the Gross Profit by the COGS and that is your markup.

If you’re an ecommerce business owner or anyone who sells inventory these are some of the numbers you need to know.

Your Products

In QuickBooks Online your products are listed in the products and services area. This area of QuickBooks Online is the virtual shelf. All of the products you sell sit here.

Each product in QuickBooks Online has to be unique. In other words, you might have 3 versions of the same product on your sales channels for SEO purposes, but those all need to map back to a single item in QuickBooks Online.

The distinguishing feature in QuickBooks Online is the Product Name. You would think it would be Sku also, but in QuickBooks Online you can have duplicate Sku’s. I would never recommend this, but QBO won’t stop you.

The first thing you’ll want to do in QuickBooks Online is set up your products. It’s a pretty simple form to fill out. I highly recommend setting up a master sku list before doing this. The master sku list will allow you to lay it all out in a spreadsheet format, so you can make sure you have all of your products listed. This also lets you map (where applicable) multiple versions of the same item on your sales channels, to the single item in QuickBooks Online that they go with.

Inventory (you own your products)

This is the key to understanding how tracking and managing your inventory in QuickBooks Online works. When you buy it, you own it. It’s an asset, it lives on the Balance Sheet, and it’s called, “Inventory.”

Your inventory will stay there until you either sell it, or throw it away. We take inventory counts in part to get the right quantities of the items we have in stock. The other reason we take inventory is to identify inventory that isn’t going to sell. When that happens we write it off. This is the danger of overstocking your inventory.

If you buy 100 items at $5 each, then you have $500 of inventory in stock. That’s what you own. When you sell it, you move the cost from inventory to Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS)

Initially this is what it cost you to buy the product. So if you buy 100 items at $5 each, then you have $500 of inventory in stock. When you sell that inventory, your cost of goods sold is the quantity you sold times $5.


QuickBooks Online tracks your inventory on what is called FIFO basis. That means First In, First Out.

So if you bought 25 of an item at $4.50 each, and then 75 of that item at $5.00, QuickBooks Online will track it accordingly.

The average cost of your inventory is $4.88/unit. On reports you will see it reflected at average cost, but when you record a sale, the COGS on that sale (and the amount taken from inventory) is based on FIFO.

The first 25 items you sell will be costed at $4.50. The next 75 at $5.00.

Watch the video so see what this all looks like.

Then check out part 2:

Analyzing Inventory in QuickBooks Online


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