Practice Management QuickBooks Small Business

Nine Things You Should NOT Do with QuickBooks Inventory

Written by Tim Grant

It has amazed me over the years how “creative” clients can get using QuickBooks inventory. Be it for urgency, ignorance, or out of frustration, clients will take shortcuts or unknowingly perform an action that ultimately undermines what they’re trying to accomplish. To help users avoid such problems, in this article, I’ll explain nine things you should NEVER do with QuickBooks inventory.

1) Select Inventory Asset from the Adjustment Account drop-down when performing an Adjust Quantity/Value On Hand transaction

QuickBooks will force the user to select an offset account when adjusting inventory using this window under the Vendors drop-down or Vendor Center. What the new user often doesn’t realize is that QuickBooks is saying, “If you want to adjust the quantities of your items up or down, the offset to the Inventory Asset account when we do this should be [fill in the blank].”

Incorrectly posting inventory adjustment

Figure 1: Incorrectly posting an inventory adjustment directly to the Inventory Asset account.

I’ve seen a lot of clients assume that QuickBooks wants the Inventory Asset account in this field. Even though QuickBooks will throw up a warning message about the account needing to be an income or expense account, clients will ignore it and leave it as an Other Current Asset–type of Inventory Asset account. This results in an adjustment of the quantity on the Inventory Valuation Summary report, but the entry has no effect on the Balance Sheet. Since one “side” of the entry using the Adjust Quantity/Value on Hand is already the Inventory Asset account, you need to select (most likely) an expense or Cost of Goods Sold account to reflect the change in value on the Profit & Loss report. Otherwise, you’re just “circling back” on yourself with this entry.

2) Merge items

One of the things I most enjoyed about QuickBooks when I began to learn it was how easy it was to merge lists, specifically customer and vendor lists. In the “old days” of accounting programs, when you had a duplicate name on a list, you had to manually back out each transaction from the duplicate and reenter the transaction in the correct vendor or customer list. QuickBooks made this correction easy by allowing the user to simply merge the names, and all the associated transactions transfer with them.

A lot of users will apply this same logic to merging items. What harm can there be if you simply rename an item and allow QuickBooks to merge the transactions? Well, potentially, a lot of harm can come of it.

As I’ll explain later with regard to “selling negative” as one of the nine things you don’t want to do with QuickBooks inventory, the order of transaction dates is extremely important to how QuickBooks posts costs. When you merge items, you can get unexpected results because of the dates of the transactions involved. For example, previously completed Build Assembly transactions may revert to “pending” status, quantities that were positive before may become negative, or links to purchase orders may be lost. In the worst case (and I’ve seen this), data corruption can occur as a result of QuickBooks trying to “line up” all the transactions in date order.

As an alternative, select the item you want to “retire” and perform an inventory adjustment to bring the quantity to zero and inactivate the old item. If you’re not concerned about changing prior-period financials, you can also try changing the individual documents to show the correct item. Once all of the documents have been changed, you can then inactivate or delete the old item.

3) Inactivate items that still have a quantity – negative or positive – on hand

You may choose to discontinue having items in your inventory that you no longer sell. That’s fine, but make sure you perform an Adjust Quantity/Value on Hand adjustment under the Inventory drop-down to zero out any quantity you may have remaining. This is also necessary for any items you know are out of stock but perhaps still have a negative quantity left on hand. All items have a value based on the quantity multiplied by the average cost. If you inactivate an item that still has a quantity, its associated value will drop off the Inventory Valuation Summary, but still will be reflected in the sum of the Inventory Asset account on the Balance Sheet. It’s best to zero out the quantities of items BEFORE you inactivate them.

4) Attempt to “split items” to allocate to multiple locations

This has been around since before QuickBooks added the Advanced Inventory module, and even now, people still try to do it. Let’s say a client has two warehouses – warehouse A and warehouse B. The client gets a widget in and wants to allocate it to both warehouses so the quantity on hand can be tracked. In order to do that, the client creates a widget A and a widget B. The problem begins with the Item Receipt. If the item is received at one location, does the receiving person “split”’ the receipt into the two items, and, if so, how does the person know how many to send to the alternate location? If the item is delivered to both locations, then each receiving person needs to know which widget he or she is receiving against. On the sales side, the person entering the sales receipt or invoice needs to know which location the item is being pulled from in order to enter the correct item on the sales document. Additionally, transfers will require another inventory adjustment, increasing one widget and decreasing the other one. Do this with hundreds of items, and you can see what a mess this could create.

Splitting items never works in QuickBooks Inventory

Figure 2: “Splitting” items to assign to multiple warehouses never works.

Trying to split items up to assign them to different locations just doesn’t work in QuickBooks. I’ve probably seen every possible attempt to make it work, and it always fails or becomes incredibly tedious to maintain. Do NOT attempt this! If your company is using QuickBooks Enterprise, get the Advanced Inventory module that adequately addresses this issue.

5) Create one general ledger (GL) account for each item

I think one of the genius ideas of QuickBooks since the beginning has been the use of items for purchase and sales documents. This makes it easy for both management and the end users to ring up transactions with familiar-sounding names and let the accounting happen in the background. However, some users think all their items must appear on the Profit & Loss statement, and, therefore, they must have a separate general ledger account that’s then “connected” to each item. This usually results in a lengthy and cumbersome Chart of Accounts that doesn’t truly give management the kind of information it needs.

Instead, pick general-sounding names for “buckets” of items in the Income, Cost of Goods Sold, and even the Inventory Asset subaccounts, then post many of the items to these accounts. This helps the end user categorize and duplicate items easily, and it summarizes the item activity on the financial statement. If clients want detailed sales or purchasing reports, they can run these reports instead:

  • Reports => Sales => Sales by Item Detail
  • Reports => Jobs, Time & Mileage => Item Profitability
  • Reports => Purchases => Purchases by Item Detail

6) Have an “empty” or one-item Bill of Materials

Clients will sometimes create an assembly with the intent to “build out’’ the components at a later time, so they leave the Bill of Materials (BOM) empty. Other times, they may be unsure whether to make an item an Inventory Part or an Inventory Assembly, so they create an assembly with just one component in the BOM. We frequently see situations where assemblies were created, but there are no components listed in the BOM or there’s only one item. Assemblies always have to be built (or the quantity adjusted in the adjustment window) in order to be put on sales documents. In the former case, there’s nothing to build, so no cost is carried over. If the assembly only has one item, then make it an Inventory Part so the item can just be received against, and it doesn’t have to be built to put it on a sales document.

One-component BOM

Figure 3: Having a one-component BOM is the same as having an Inventory Part. BOMs with no components have no cost.

7) Post a purchase directly to the Inventory Asset account

An inexperienced QuickBooks user will sometimes not use the Items tab on a bill, check, or credit card transaction to list the items received or about to be paid for, but will instead use the Expenses tab to post directly to the Inventory Asset account on the Balance Sheet. This increases the amount on the Balance Sheet, but doesn’t impact the detail of the inventory listed on the Inventory Valuation Summary report.

Incorrectly posting to Balance Sheet

Figure 4: Incorrectly posting directly to the Balance Sheet account on a bill or check.

One way to find these is to do a QuickReport on the Inventory Asset account filtered for the transaction type. Add Items to the display, and when running the report, look for any transactions that are missing items.

8) Post a journal entry to the Inventory Asset account

Similar to posting a bill, check, or credit card directly to the Inventory Asset account, a common mistake is using this account when posting a journal entry. Adding line elements using this account will increase or decrease the Balance Sheet account, but since journal entries don’t include item list elements, it won’t have any impact on the Inventory Valuation Summary report. (Note: An exception to this rule may be at year-end when an adjustment needs to be made to account for a cash-basis Balance Sheet, but even then, the journal entry should be reversed on the first day of the next period.)

Incorrectly posting to Inventory Asset

Figure 5: Incorrectly posting directly to Inventory Asset within a journal entry.

 9) Sell “negative” on-hand items

This is probably the most important one, and yet the one mistake most clients make. This refers to actions that cause the Quantity on Hand to become a negative value. It may be the result of a drop shipment where the client is invoiced right away, but the bill from the vendor is added at a later date. More commonly, it’s the result of clients entering invoices or sales receipts without the corresponding item receipts having been entered. QuickBooks needs the average cost of the item on file at the time of sale to match expense to revenue. It doesn’t look at later transactions to compute the cost if the items are posted after the sale. This causes a distortion in the timing of the Cost of Goods Sold, which can in turn impact the overall Profit & Loss report, as well as the Profit & Loss by Job report and the Profit & Loss by Class report.

Not Enough Quantity warning

Figure 6: Warning that appears when attempting to sell negative quantities on an invoice.

Negative quantities also affect the status of Build Assembly transactions. If a component of an item is received in QuickBooks after the item is actually built, it will revert to pending status because the components were not in stock at the time of the build.

Fortunately, QuickBooks does “heal” itself if you later redate the transactions to the prior order (assuming you can still post to closed periods). The easiest way to avoid these problems is to simply instruct users on the timing of performing their tasks, then enforce and monitor how the transactions are being put in.


Your primary guide to making sure the client’s inventory in QuickBooks is correct is by matching the Inventory Asset balances on the Balance Sheet with the Inventory Valuation Summary. By avoiding these nine don’ts, you’ll have a better chance of keeping inventory in balance.

This article was updated on 4/3/2014

About the author

Tim Grant

Tim Grant, MBA, is the President of Business Solution Providers in San Francisco, California. BSP specializes in third-party inventory and manufacturing software products that integrate with QuickBooks. The company provides Needs Assessments to businesses looking for an inventory or manufacturing software solution. Once a choice is made, the BSP team can provide setup, training and implementation services to sync the company’s goals with the capabilities of software.

Tim has practiced public and private accounting for over twenty years in the service and manufacturing industries. He is an advanced-certified QuickBooks Pro Advisor, and a member of the Institute of Management Accountants, the National Advisor Network and The Sleeter Group.


    • Not in the regular versions. There are some features in QuickBooks Accountant that can help with this, though (the special Accountant version of QuickBooks that ProAdvisors would have).

      • That’s ridiculous that that feature is only available in Accountant version. Intuit should have built that in their most expensive package, the Enterprise version

    • #7) Post a purchase directly to the Inventory Asset account:
      Run 2 reports – Run the Balance Sheet > drill down on the Asset account to open the transactions report > Filter to select only purchase transactions (bills, bill credits, checks, credit card charges, etc.). Compare that total to the second report: Purchases by Item Detail. Be sure to use the same date range. The 2 dollar amounts should match. If they do not, something was posted to the inventory account not using an item.

      #8) Post a journal entry to the Inventory Asset account:
      Run the Balance Sheet > drill down on the Asset account to open the transactions report > Sort the report by “Type” and look for “General Journal”.

  • Thanks, but two notes for clarity:

    item 1, inventory asset account is an asset, not a liability account.

    item 2, always look for residual qty and value for an inventory item no longer in use. Even with a qty of 0, sometimes there has been minor amounts in the asset account and I suspect it is part of the rounding drift we see; specifically, the recent rounding errors have gotten ridiculous.

    • Thank you, Michele. The first item was an error that I missed in editing, I have corrected that.

      The second item is a very good point. You shouldn’t have to worry about this, but it does happen on occasion. Unfortunately I haven’t come up with a sure way to actually create that kind of error in a simple case, so that we can illustrate it.

      • I don’t belong on here – I found it as I googled for some QB help – and now I see what we really need is hands on help of this caliber to set us straight on our messed up QB for our very small manufacturing facility. As I read through this article, I realized we are guilty, guilty guilty… and in need of real help. We are located outside of Walla Walla WA – anyone near there?

        • You can use the “find a consultant” link/graphic that is at the upper right corner of this page, Diane. Alternately, you can contact Tim Grant directly, although he isn’t in your area it is getting easier and easier to work with remote clients these days.

  • This topic is right on the mark of a problem I need to solve. We have a small manufacturing operation- making soaps and lotions- but tracking raw materials isn’t a priority right now. What is a priority is tracking finished inventory. We also aren’t ready to invest the time in creating the extensive BOMs necessary. So we’d like to either buy or make the parts from our mfg operation- which would put them into finished inventory. Can you suggest a course of action? We’ve got our products costed out for the most part, so I thought we would make each retail unit have a 1 item BOM that would be costed at the cost of the ingredients of the item. Like Retail Shampoo is made up of 1 unit of Shampoo mfg with a cost of the COGS for that unit. Can you see any issues with this? And I imagine we’re taking them back out of acounts payable with a DM? Or how would that work?

    • Without a lot of detail about your operation it is hard to give a definitive answer. Overall, one approach is to just have a “non-inventory part” item with a “cost” of $1.00 (or whatever unit makes sense) and an expense account (make it two sided) that points to the expense account you use for your raw material purchasing, OR to a special adjusting account. If you use $15 of raw material then add 15 units of that item. Then it removes the value from that adjusting or expense account when you “build” the assembly. There are some details on how to set that up correctly that depend on your situation, though, so it is a bit hard to give a definitive answer just in blog comments.

      You may want to contact Tim Grant through his website to get him to consult with you directly on this, that way he can get the details of your situation and make the best recommendation.

    • It would be at least worth to do a detailed cost analysis including overhead for the manufacturing portion. The most common thing that I see in small manufacturing is not taking the time to do that. You would be be surprised to see how many are actually selling below their cost to manufacture.

      • I wouldn’t be surprised, Laura – you are right, that is a VERY common problem. It is one of the first things I check for when working with a manufacturing company.

  • I just finished a project that violates one of your principles, negative inventory. The client doesn’t track inventory items in purchases, but does have costs for major categories, and does have quantity and sales price for smaller categories that I enter as items (with fixed unit costs).
    Purchases are added to the major category in item lists, and Sales are added to the items within those categories. With reports, the purchases and sales roll up into positive categories, even though all item amounts are negative. This also works because the COGS are not automatically averaged by QuickBooks. In most cases, the COGS comes only from the unit cost in the item, otherwise a GJE is used.
    It’s not an ideal system, but the best system with the information I have to work with. In this situation, you really have to know what QuickBooks is doing in the background.

  • Should you use QB’s Inventory Adjusment feature if you want to move the cost of the inventory purchaced to a Capital Investment Expense account?

    I work for an IT Management Service Company. We provide everything from setting up offices with computers and telephones systems to hosting and cloud services. Every product that we purchase even if it is already sold to a customer is being tracked as Inventory. Sometimes purchases made are not for a customer and are for our office and need to be accounted for as a business investment. What is the best way to move the inventory item from the inventory asset account to the capital investment expense account without causing negative quanities in inventory? Does this make any sense?

    • Two issues here, Jessica.

      You can use an “inventory adjustment” transaction to move the value out of “inventory asset” into the expense account. There are different types of adjustments you can use depending on what you are trying to do. In all cases you are asked for an account to post to, and the balancing posting adjusts the inventory asset account for the item. Use this, rather than a journal entry.

      As far as negative inventory – I’m not sure what that would be the case, but you don’t provide a lot of detail. You purchase the quantity of the item, and the item receipt transaction adds the value to the inventory asset account and increases the quantity of the item. You then are disposing of the item in some fashion? The inventory adjustment can decrease the quantity and move the value. This assumes that you are making the items not available for other uses. If you only dispose of the quantity that you received, there would be no negative inventory.

      If I’m off base, please provide more detail of what you are trying to accomplish.

  • Thank you for the qucik response and you are not off base. This has been some what confusing for me to understand. I just started working for this company and ran the inventory report and this is where I found the negative quanties in the hundreds on some items.

    We are not creating PO’s in quickbooks the item receipt get transfered into quickbooks from our business software. So the inventory should be auto matically received. The invoices get generated from the software program and also intergrate over to quickbooks. So the items should be received then sold imediately, however there is a problem somewhere because none of the inventory tallys match in either system. We currently only have maybe 10 products that are in stock so all of the inventory except for those items should show a zero balance.

    We were thinking about clearing out everything in inventory to get to zero balances using adjustments and try and start over. Do you think this is the way to go? I am worried how the numbers will be effected by doing this?

    • Jessica, it is hard to give specific answers without being able to see the data file. It sounds like you have a problem relating to these outside systems, and if you bring everything to zero but don’t fix the problem that is creating the imbalances, you’ll just get the imbalances again. You need to audit your integrated systems to see why they are creating the imbalance in the first place, and resolve that.

    • Hi Jessica. Charlie beat me to the answer. Just adjusting the quantities doesn’t ‘fix’ what processes are going on that are causing the imbalances. Do you reconcile a sample of the transfers in both programs after a sync? How are returns handled? When was the last time a physical inventory count was made?

      I would love to take a look at your setup and see if we can diagnose what it going on. Please contact me at 415.800.3578. Thank you.

  • Charlie,

    About #9 and specifically your statement, “QB does “heal” itself if you later redate the transactions to the prior order.” Does redating only heal the quantity or will it adjust Avg Cost/COGS for the invoice, as well?

  • This is a great article. I will keep it a as a resource for my current and future employees. My comment though is regarding rule #6, only having a single itme in a BOM. We do some manufacturing and purchase OSB sheets from a lumber suppliers. We receive the sheets in by the square foot. We then mill the sheets into mulitple parts. We create custom boxes so we don’t always know what the exact conversion will be until we get an order. So, we create a part (side-wall) as an assembly so we can convert the 4×8 sheet into the 2×3 sidewall. The only item in the BOM is the OSB with the number of square inches needed to create the part. This allows us to track the cost of the sidewall and the remaining OSB in our inventory. If there is another option available I would be happy to hear about it as creating multiple subassemblies can be time consuming.

    • Tim, this is a case where using Enterprise can make a lot of sense (if you can afford it) as Enterprise allows you to modify the BOM at the time you issue the build, and it affects only that one build.

    • Hi Tim. Using a one-item BOM in the way you described it can work. Charlie and I have gone ’round and round’ about using this technique. You’re obviously a more sophisticated user of the product then the general audience that I was speaking to. I look for weaknesses in the ways clients have set up their files, and too many times I’ve found one-item BOMs that were just sitting there incomplete or the client meant to use it as a standard inventory part. I realize there are times when a one-item BOM is appropriate, but unless the client has a specific business case for it (like you do), I don’t want my clients to start setting these up and then not use them properly, otherwise, they’re asking for more cleanup down the road.

  • I have I big issue wit inventory quantity on hand Bill was entered to purchase inventory on January 1st and sold inventory to client on December 11 Some how it creates inventory on hand – 2 and when it sold deducts 1 Should be 0 on hand?
    Also problems with COGS – it was posted double cost for item in negative amount and postdr for same item normal way
    When I run detailed report – that negative amount in COGS (cr) other side went to Inventory… It did reduce COGS and Increase Inventory. It is so difficult to explain…

    • Hi Marina. If you could give me a call at 415.800.3578, we can log into your file and figure out what’s going on. You’re right — it’s probably easier to show it to me than to try to describe it.

  • I am new to this small company. We manufacturer small parts to a variety of different groups. I am attempting to produce a budget and am looking into their finacials more and see how much their inventory adjustments Skew their COGS. I am really shocked of how often they use their inventory adjustment, and seeing that I am also new to Quickbooks cannot in the goodright see how it is correct. They ended with an inventory adjustment of -29,000.00! is this correct? some months it would be positive 7000 and others it would be -10000. They explain to me that this is the only process they have to come up with the count of paint and other raw materials. But how is this so??

    • Hi Aimee. Inventory management is very ‘workflow process’ based, meaning the users must follow a process and perform their tasks in a given way. I suspect this client is probably not doing that, and is unaware of of what the correct procedures should be. Doing constant inventory adjustments only magnifies problems. In fact, we don’t like our clients doing IAs except for true damaged or stolen items and when inventory ‘counts’ are performed.

      You can find some of our recommended workflow processes here under Workflow Process Documents. We also you reach out to us or another inventory professional to help you and the client get the processes under control, or you will constantly continue to have problems.

  • I was just reading through some of Tim’s excellent articles again and wanted to comment on the mess that is caused by #1, #5, #7, and #8 for QuickBooks users.

    In ACCTivate!, we select G/L accounts in our Configuration Manager (similar to QuickBooks Preferences). We discovered this problem long ago and decided to hide the ability to choose a different combination of accounts for each product. For example, you predefine the Income and COGS accounts by Product Class (group), Customer Type, or Sales Branch, etc. We try to find all of the combinations from QuickBooks when setting up an ACCTivate! company and it’s such a mess.

    ACCTivate! also allows negative inventory. We do a much better job of calculating COGS even with negative inventory, but it can still cause serious problems when companies don’t get all receipts and/or bills entered before closing a period or year.

    Tim is a great writer and I really enjoyed reading this again! Thanks for sharing!

    Brian Sweat
    President and Chief Operating Officer
    Alterity, Inc.

  • I just wrote a blog post about how inventory tracking works in Quickbooks Online and I linked to this article.

    I know this is based on the desktop version, but some of the tips in this article definitely apply to QBO.

    I will bookmark this as one of my go-to resources for the future.

  • As a small manufacture that sells mostly to consumers we are always selling at negative quantities. We use MiniMRP to create our assemblies and work orders because Quickbooks assemblies do not work for us.

    But how do we get the finished goods, that we manufacture, to inventory in Quickbooks? That is our problem. Is there a right way to do this?

    • Hi Charles. Sorry for not getting back to you sooner. The easiest way is to do an inventory adjustment for both quantity and value. If you made 100 widgets, you would adjust your inventory for 100 units. The value can include whatever costs you have put into the manufacturing. Just be sure to select an Adjustment Account that reflects the costs of the inputs. You would want to make it an expense account with a name something like, ‘Internally produced inventory’ to offset your other expenses (i.e., payroll, raw materials, etc.). If you wanted to get really tricky, you could set up a B/S clearing account and run it through there, but then you would have to re-allocate your expenses from the other expense accounts to zero it out.

      With the inventory adjustment, the cost of the items will be expensed to COGS when the item is sold. Hope that helps. Thanks!

  • Hi, I have a quick inventory adjustment question. Every month we take a physical inventory and there is usually a couple of times that are damaged or shrinkage. when i make the inventory adjustment in Quickbooks, should I adjust quantity only or quantity and value? thank you!

    • Holly, that depends on what your accounting advisor wants you to do. Typically I would do just a quantity adjustment – move that quantity and value (based on average cost) into whatever expense or other account you have set up for this. You only need to do a quantity & value adjustment if you want to change the average cost of the items, which usually isn’t the case. But there can be situations where you might want to change the average cost (rarer).

    • Hi Holly. I will reiterate what Charlie says. For damaged goods, just do a ‘Quantity’ adjustment. The other option for quantity AND value should only be for when you want to adjust the total value of what’s on hand. This is rare, as Charlie says, and is only used when the value of a commodity like gold, silver products change in value, or if items were becoming obsolete. On the rare occasion, it might be used to re-value if some large mistake were made in receiving from a prior period, and you want to make an adjustment for a value in the current period.

  • Hello. We are going to begin using QB inventory (advanced inventory in Enterprise) after some additional testing. Could you please advise on a couple issues we’re encountering: Since we haven’t been able to get an import file to work we’re cutting and pasting in the add/edit multiple list entries. Turning on advanced inventory removes the option to input quantity on hand. We have thousands of parts – how can we designate location and QOH during the setup? Another funny issue involved buying inventory with a credit card – if we receive inventory from a PO we can’t select the PO during ‘enter credit card charges’. What are we missing? Thank you in advance!

    • Pat, you can also receive items from a PO using the Enter Credit Card Charges function as long as you don’t enter the item receipt first. Once you use the item receipt, you have to use the pay bills window as Tim refers to.

      • Good Morning Tim and Charlie – Thank you for the prompt replies. Baystate’s importing tool looks easy to use. I’ll give their demo a try and will probably purchase. We currently use Pedyn for inventory and do not have anything in QBs. As an initial QB setup I was hoping to get all the inventory data imported at once (QOH, cost, location, bin, lot/serial…).

        Our AP staff deals with dozens of credit cards throughout the organization. They utilize the Enter Credit Card Charges instead of Pay Bills for the reconciliation feature. The Procurement team issues POs(and often pays with credit cards), the AP staff enters bills & payments, and the Shipping and Receiving group receives product into inventory. Usually a credit card payment is due before the inventory is received but it would put the items into inventory at the time of payment. So I guess this is two issues – inventory payments before inventory is received and not being able to apply payment toward a PO through Enter CC Charges if someone receives inventory in the system. Workaround ideas or am I missing something? Thank you again!

        • We’re looking at entering the CC charge to a prepaid inventory acct, then entering an associated credit to the vendor for the same amount. The credit would be used to pay the PO/invoice when the items are received. This seems a little clunky but possible – the AP staff is not excited to say the least. Maybe someone has a better plan. We’re still at least a week away from inventory implementation – lots of other details to work out between the different departments.

          • In a very general sense that is the kind of thing you’ll need to do if you want to do both item receipts as well as the CC charge window. Enterprise also has “Enhanced Inventory Receiving” which splits things up more, but I generally recommend NOT using it because of the other headaches it creates.

        • Pat, I have a review of Transaction Pro Importer at – an outstanding product by an outstanding company.

          You are going to find that there are limitations as to what you can import. Some items of information can’t easily be imported due to restrictions on what QuickBooks allows. If Transaction Pro Importer can’t import something that is because of limitations in QuickBooks itself. And, you may find that it is a complicated import to create, utilizing multiple steps in the right order. You may want to work with someone who can help with this (Tim, perhaps?).

  • Hi Pat. You have to think about the ‘item list’ and the ‘adjustments to quantities and locations’ as two different things. You start off by creating the list of items. These can be added with the ‘Add/Edit Multiple List Entries’ window. Then, you adjust the quantities and locations. We typically use, ‘Transaction Pro Importer’ from to import inventory adjustments and designate the locations. It’s a very versatile tool. What import tool were you trying to use? I would need to know more to find out why your import was not working.

    As for the credit cards, purchase orders are just non-posting,’working documents.’ They are only intended to serve as a temporary list of items on order. The items need to be received (Item Receipt), then the item receipt turned into a vendor bill BEFORE it can be paid in the Pay Bills screen using a credit card. A common mistake people make is that they use the Item Receipt, but don’t turn it into a bill. Item Receipts don’t show up in the Pay Bills screen, but will show on the Unpaid Bills Detail report.

  • Great Article as most Sleeter articles are!

    Just curious if anyone has figured out a way to sort items in a Bill Of Materials within Quickbooks Enterprise 14+. We can do this externally with ccrqbom (terrific tool) but I would love to figure out a way to change and save the sort order of items in a BOM inside Quickbooks. Right now the only order Quickbooks gives you is the order in which you entered items. You can of course insert rows and manually change order but this is fairly laborious. Any suggestions would be appreciated.

  • hi guys, having a problem with one item in my inventory, my company deal in the manufacturing of soap.The problem is one of the inventory RM item just started showing *overflow* in its field of report recently (the item is called soap noodles) and and it is part of the bill of materials in making the soap.Really baffled here so i did a quick research on the problem and couldn’t really understand how to fix the error only got that my supply for that item might be over the required tens of thousands for Quick books .i have tried changing the unit cost price just maybe reducing it a little but the overflow is still there and it has really messed up my inventory report to management..really need urgent help on this the way am using Quick books enterprise solutions 10.0

    • Hi Obi. In the best case scenario, you have one item that is causing this issue because it was entered incorrectly. Here is a good article about how to go about correcting this issue: Note the ‘How to Fix’ section for just one item. At worst, you could have a corrupted file. There are procedures for determining this. Contact us at and we can help you.

      Also, we do not recommend you continue to use QB Enterprise 10.0. Intuit no longer provides technical support for it. The current versions have many more features and tech support available. How big is your file? If your file is over 1GB in size, then you may be suffering data corruption as well. We can review your file, as well as get you a significant discount (up to 40%) on the new edition.

      Thank you.

    • A good first step is to use the “rebuild” option in the File menu. However, you also need to review the qbwin.log file after the rebuild to see if there is further work necessary. Someone like Tim can help with interpreting the results there. We’ve seen the “overflow” issue occur often with Enterprise inventory systems due to file corruption, and sometimes the rebuild (and fix, after looking at the log) process resolves things.

  • I am new to inventory on QB. I work for a company that has been in operation for about 5 years, and they have never kept track of inventory, and it is now my job to do so. I am lost! Help would be great!

  • My client is having a serious problem with inventory in QBO plus. The steps currently being taken are: 1)Based on Purchase Order, Sku is created (if not already in QB) with quantity of 0 and inventory tracking turned on. 2)Once shipment/Bill is received, payable is created with the sku(s) listed so the correct amount will be listed in inventory. This is the step that should put the quantity on hand. What is happening is something totally different. A lot of activity behind the scenes that inaccurately adds amounts to Opening Balance Equity and Inventory Shrinkage is going on. What are we doing wrong and how can we correct it? Thank you…so frustrated.

  • Hi,
    I have a computer shop and i have a sperate program for stock control.
    So whats the best way to setup items and entering the invoices i get from my suppliers and they paying them.

    I am mainly going to use quick-books for entering the daily til Z readings and printing invoices, and logging purchases and expenses.

    I do it all in excel at the moment and i am testing a 30days trial of premier but at the moment it looks like its going to be more work for me.

  • Hi Aaron. This depends upon the software program you’re using now for stock control. QuickBooks (any flavor) can manage the inventory and record receipt of the items as you purchase them. The issue is how do you carry over the sales information (items) into QB to decrement the quantities on hand. If you can run an end-of-day report that summaries the items sold, then you import that information using a third-party tool into QB (i.e., ‘Transaction Pro Importer). QuickBooks does not have to maintain the customer records, just the items sold and payments made.

    Another alternate is to use QuickBooks for your sales and stock control in the store. Many clients have made use of the Sales Receipt function in QB, and used it like a POS workstation.

    You also have the option of getting QuickBooks Point-of-Sale for your store, which does sync completely with the QuickBooks financial.

  • Hello, I have a question regarding recording of inventory values in QBO when the client is using an external software to actually track the inventory count. I am recording the inventory purchase invoices in bulk value as “inventory asset” with a journal entry at the end of each month to record the COGS (numbers provided by the other software) When I enter the invoice total as “inventory asset” can break out the freight paid as a sub account of the inventory asset account so that we can see how much has been spent on freight over the course of the year or just leave it as a bulk price that includes the freight?

  • Hi there,need your assistance regarding quickbooks, I have an unknown erroneously entered transaction where the quantity of the item increased and the corresponding bank account decreased in value, but the transaction doesn’t appear any way not even in the audit trail, how do I reverse or track it, thank you

  • Hi, i need your assistance, after merging customers on quickbooks pos, the total quantities and the server at the head office is different from the one at the outlets, how can this be resolved,.

  • Hi,

    Most of the questions I have read seem to relate to manufacturing and very experienced QB users 🙂 I, on the other hand, am a first time user with QB. I have basically self taught in the last few months, with a ton of mistakes and re-dos lol. I starting working for a boat dealership and have found out how complex it is. I am having several issues entering information the correct way. My largest issue is when we sell a boat and the customer has a trade-in, which I just figured out (I think) on how to enter the trade-in. We then go over the boat, work on it and have an internal work order, which will add to the cost of the boat. There will be labor, parts, accessories on this internal bill. How do I enter this internal work order to the cost without changing the quantity value. I tried entering it as a bill against that inventory item # and it adjusted the quantity on hand. Another problem with the internal work orders is that this is also a service income so to speak and I am at a loss with all of it. Any suggestions would be greatly appreciated. Thank you.

  • Hi Brenda. Don’t worry, you’re certainly not alone among QB users who are unfamiliar with the functionality of the inventory system. Managing inventory is inherently more complex than most people think. It’s only after they have made mistake after mistake do they usually realize there’s more to this than simple bookkeeping.

    For your situation, there’s two ways to handle it — by either listing the costs separately on the invoice, or ‘rolling up’ the costs into an assembly which includes the boat and all other labor/repair parts, etc.

    In the first case, you identify the customer on the bill or time card and mark the charge as billable to the customer. When you create the invoice, you can select the charges you want to include. This will leave the quantity, cost and price of the boat alone, but list the additional items separately.

    Doing an assembly to ‘roll-up’ or incorporate the additional costs into one finished product allows you to more accurately gauge the margin or profit received per boat. However, in QB, it’s harder to capture all of the costs in the assembly.

    For example, for the labor, you have to estimate by dollar how much of the bill or paycheck is going toward the repairs and alter those transactions to ‘pull out’ that amount and put it into a separate Other Current Asset clearing account (maybe called ‘Repair Labor Clearing’). Then, you set up separate Service-type items for each unit of time that goes into the repair (i.e., hour, day, etc.). Have the COGS and income account both post to the new OCA account. Then, you include this service item in an assembly for the finished boat. So, your assembly might be ‘New Boat 1,’ and the components are: Old Boat; Service Item, Repair Parts.’ When you perform the Build Assembly, all of the costs of the components will be rolled up into the cost of the salable product.

    For the repair materials and overhead, you can also create other clearing accounts for them, or just create Service or Non-Inventory Part type accounts that pull out directly from the expense accounts that the original bills point to.

    The best part using this method is that you can run the Item Profitability report and now see the true difference between the costs that went into renovating the boat and what you sold it for. The hard part is getting the labor and other material costs correct in the clearing account to match what the service item is pulling in.

    I hope that helps!

  • Hi! I am new to Quickbooks 2014, or should I say, any QB version period!!! I need help with the following situation please!!! I work for a small oil and gas company and we have customers who are also vendors. One customer/vendor in particular has been sending us their version of a “Revenue Summary Statement” each month, showing all the oil and gas revenue our company earns each month. But, instead of sending us a check for the revenue attached with our invoice, they have been “netting” that revenue and then showing this on the report as being “netted” and that they owe us a $0 balance. Behind this report, they include a copy of the bill they are sending to us as a vendor, showing how they took the “netted revenue” we earned and how they applied it against all the invoices/bills we owe them, which mostly ends up showing that they paid us $0 in a live check and we are required to pay them $0 in a live check. Here is my dilemma, I am completely aware that I need a “clearing account” in order to show these transactions in QB because I’ve got to show that we received the revenue from them and that we paid the bills that were sent to us. I need to know if doing the following procedure will accomplish the goals I have described. I created a clearing account as a “bank” account and named it “Clearing Account”, so that I could receive our revenue payments to the account and pay the bills to that company with checks from that account. I entered all the revenue information provided on the Invoices they sent to us as Invoices, but since they are showing on the reports that they are basically “netting” and holding onto our revenue checks in order to show that we paid our bills to them, I created a new “Item” and selected it as a “Payment” instead of a “Service” (like you would do if it was a revenue, tax or other expense account) and selected the Clearing Account as the account the money is to be deposited to. In other words, when I’m entering the Invoice information that shows the revenue we earned, I have to also selected the Item, which I named “Netted Revenue”, so that it subtracts the revenue amount on the invoice (showing a $0 balance owed to us in check form), but that at the same time, the revenue has been entered into the correct revenue account for our records, but that the “netted revenue” was deducted and placed in that clearing account. Then, when I go on the vendor side and enter the bill that is associated with receiving payment from that same “netted revenue” amount, I enter the bill information showing the total amount owed, and then pay that bill out of that clearing account with the exact same amount of the “netted revenue” that was moved there from the invoice. I am new to QB and having to do a lot of work independently at work, so I am in desperate need of any advisement on this. I need to know if I am doing the correct process here in order to show that we received the revenue from the customer and then show that we paid the bill we received from them as the vendor.

    • Hi Tammy. This is not really an ‘inventory’ question, but is a common question among QB users. Your description of the answer starts off fine — create a clearing bank account. Then, you enter your invoices and bills as you would with all of your other customers and vendors. Perform a Receive Payment on the invoices, and go to Pay Bills to pay the bills. Designate the clearing account as the Deposit To and checking account to pay from. You’re simply just not writing a check. The balance of this account should be either monies they owe you (invoice total over bill total) or you owe them (bills total over invoice total). There’s no need to set up new items.

      You can find the answers to this question and others by following the Sleeter blog or doing a search for your topic. They are many people out there willing to help you.

  • My question is this :-
    I have 1 ware house and that have some items.
    when i make an invoice i wish that quickbooks mix warehouse and company own stock and auto less from inventory stock.
    For example :-
    ware house have item A.20
    compnay stock have a.10
    total quantity is a.30
    when i make an invoice a25 . quickbook shouls take a.20 from warehouse and a.5 from compnay own stock .
    This is my problem

        • Waseem, if you are saying that you want the program to preferentially take stock from one location before another, automatically, QuickBooks won’t be able to do that. With or without using the Advanced Inventory addon feature for multiple warehouses.

  • Hi:

    I am new in a small manufacturing company, I found some mistakes, we used the tab expenses to register items….so the items never will be part of our inventory. Is there any way to solve this problem without reverse these jornal entries…this mistakes were made many months ago and bank réconciliations are done, I am afraid to do something that could affect banks réconciliations. Any ideas about I can manage this situation. Thank you

    • We would have to see the specific transactions to give a specific answer, but in general you can use the inventory adjustment function to add the inventory and move the value from the expense account over to the inventory asset account. Sometimes that isn’t exactly what you want to do, depending on what account was used in the expenses tab and how that might affect your income statement. DO NOT use journal entries to correct the inventory asset account, use inventory adjustments.

    • Hi Rocio! If the transactions are in the current year, then you can replace the Expense tab postings with the actual items on Item tab, as long as the total amount on the bill remains the same. This will have no affect on your reconciliations.

      To reverse what’s out-of-balance from prior periods, do this:
      Run the Custom Transaction Detail report
      Set the date range for all periods
      Add to the Display box, ‘Item’
      Under the Sort by dropdown, choose ‘Item’
      On the Filters tab, select Account
      Choose the Inventory Asset or parent of multiple IA accounts in the selection box to the right.
      Click OK

      This will give you a report that at the top shows all transactions that were posted to the Inventory Asset account(s) without an Item. Whatever the total is at that point in the list where the transactions WITH items begin, that’s the number that you need to make an adjusting journal entry to clear out that balance.

      Once you’ve done this, check your Inventory Valuation Summary to see if the total of that report matches the new balance of the IA account on the Balance Sheet.

      If you want to contact me for further advice, reach me at Thanks!

  • We have a niche business that primarily converts motorcycles to trikes.We also purchase and resell motorcycles and trikes or take them as trade-ins.We are using Premier Mfg & Wholesale 2012. I would like to track profit more accurately but have not figured a way except to enter each motorcycle as a unique inventory item with a quantity of one and the unique value of that item. Is there a better way?

    • Another approach that differs a bit from Tim’s suggestion is to not use bills of material at all, since they may vary with each conversion. Enterprise does allow you to modify the BOM for each build, but I’m not sure that this is the best approach. You might consider looking at each conversion as a “job”, and use the job costing features of QuickBooks to track the costs that go into the conversion.

  • Hello Gene. Using your current product, Premier 2012, you would need to set up each motorcycle or Trike purchased for resale as a separate inventory item. You could use part of the VIN or other identifier in the name or description to set it apart from the others. Then, you could use the Item Profitability report under Jobs, Time & Mileage in the Report list to see the margins on each sale. Alternatively, you could group some of the identical items under the same name and just not track the identifying number, and still use this report.

    If you are refurbishing the items, or adding parts to them, then you want to create assembly-type items to track the additional cost of labor materials that go into the new unit.

    Your other choice is to purchase QB Enterprise with Advanced Inventory which does have serial number tracking. Although there isn’t a way to get profitability by serial number, you would gain the ability to track each motorcycle or trike by its identifier, then group similar items and get the results out the Item Profitability report.

  • I work for a screenprinting/embroidery small business. Inventory has never been tracked and when I started a couple months ago I was the first to start entering/paying bills within the 2013 Premier QB. I’ve been inputting all Expenses as ‘Cost of Goods Sold’ (and within their subcategory, ie. screenprinting/embroidery/supplies).

    We submit purchase orders, but typically on the vendor’s website and not through QB currently, as needed for Customer Jobs.(for example, we’ll get an order for 5 tshirts, another order for 4 sweatshirts and we’ll submit a Purchase Order to a vendor for those 9 items) There are times when we have leftovers that are more cost effective to keep.

    Management would like to track inventory to keep track of these ‘extras’, know where we stand in terms of our profit margin based on the cost of goods etc., and keep track of items received from vendors getting attached to specific jobs for customers.

    I’m not sure where to start. I think I need to create PO’s even if it’s just internally and never used by the vendor – I can do this with Order Confirmation emails that I have. The next step would be receiving these items with a Bill and then Paying the Bill.

    I think I might run into an issue with Paying the Bill sometimes because we use a credit card for a majority of these purchases and I use ‘Enter Credit Card Charges’ to do this.

    Also, I want to udpate the Item List we have to show the Type as ‘Inventory Asset’ instead of ‘Service’ per an Intuit article I was reading on the subject, but the drop down to change the Type under Edit Item is not active although I’ve made sure Inventory Tracking is on. Is there a way to Edit a large group in the Add/Edit Multiple List Entries section? I can’t figure it out.

    Wow – that was a lot, sorry to bombard you with so many questions. Thanks in advance for your help!


    • Julie, a few things aren’t clear, my apologies. You say that you submit purchase orders, but then you talk about submitting PO’s just for internal use? That confuses me. It sounds like you already have a PO going out, just that you don’t use up all the items that you receive.

      As you see, you cannot change a “service” item into an “inventory part”. That is because these items types work in different ways, and converting an existing one into the other type would wreak havoc on your financial statements. In this case you need to create new items to create “inventory part” items. You can retire the older service items by making them inactive.

      As far as using the credit card to pay for them, no problem. You will receive the item in the “enter bill” window, which creates a payable. Then in the “pay bills” window you will select the credit card as the method of payment, rather than using the “enter credit card charges” window.

      Note that switching from service to inventory part items changes how costs flow through your system. With service items, you expense the cost when you pay. With inventory parts, when you pay then the cost goes to a balance sheet “asset” account. COGS is not updated until you actually sell that item on an invoice or sales receipt.

      Take a look at this article, which may help a bit:

      • Thanks for the quick response, Charlie! We have never created PO’s through QB but I would like to start doing it. My purchasing/sales manager submits their order to specific vendors through their website and I get emailed a purchase order confirmation. I was thinking I’ll have to use the emailed confirmation with the detailed list of items ordered to enter a PO into QB.

        Thanks for explaining the difference between Service and Inventory Part Items. Do you have any suggestion for how to make the change as seamless as possible? Each order is for multiple customer jobs so I’m afraid when I create Inventory Parts, make Service inactive and start the process of creating PO’s and Receiving/assigning to Customers there will be issues with Invoices that have already been created but used inventory from a PO that I’m trying to enter for an invoice that hasn’t been created yet and I want to track… Also, I see an issue with the Growing Pains involved in trying anything new; I’m sure there will be items that I put on a PO that were used for invoicing that gets missed when the invoice is created.

        Thanks for the link to Understanding QB Inventory Costs – very helpful as well.

        • It’s not clear to me that you need to use PO’s in QB for this if you don’t want to.

          It isn’t easy to give specific advice for a specific workflow through blog comments like this. There are many variables involved. I recommend that you work with a qualified QuickBooks ProAdvisor who has a good understanding of inventory procedures.

          You are located in the midwest? I’m not sure. If so, I don’t have a specific person local to you to recommend, but people can work with you via remote connection very well. Tim Grant, the author of this article, would be a good person to work with for example.

  • I work for a non-profit. We have a small gift shop consisting of books, cards, gifts and toys. We have just under 1000 inventory items. We converted from Sage Accounting to QB in April of 2014. During the conversion, the inventory items did not come over with cost data. I added the cost data for each item. I did this by using the “Adjust Quantity/Value on Hand” option under Inventory Activities where I adjusted the Value only.

    After adding the cost data, my balance sheet inventory asset accounts did not match the balance sheet from Sage. So I made a journal entries to the assets accounts and opening balance equity. I talked to our CPA and they thought this was ok. My theory was that QB took an average cost so that is why I needed a je.

    So now in one of my smaller inventory assets accounts I am showing a negative balance on my balance sheet. Even though I have a positive number of inventory items.

    I am pretty sure my journal entrees are where I went wrong. But I just did not know how to have my beginning assets in QB match my ending asset balances from Sage. Any suggestions would be greatly appreciated.

    Thank you so much!

  • Hi Julie. Yes, you ‘violated’ Rule #8 of posting journal entries to the Inventory Asset account. While this does increase the value on the Balance Sheet (hence, why the CPA was happy), the entry does not affect your actual item list. The Inventory Valuation Summary, which is a detail list of the current inventory items in stock, MUST match the Inventory Asset account(s) balance on the Balance Sheet. You affected one without hitting the other.

    Also, I’m curious why you did a Value adjustment in the inventory adjustment window? If you had the costs entered into the cost field of the Item Edit screen, you merely had to do a Quantity adjustment and the total value would have carried over to both the IVS report and the Balance Sheet. Making a value adjustment to an item with zero quantity has no affect, and probably why you are seeing negative quantities as items are being sold.

    At this point, I would suggest you first run the Inventory Valuation Summary for the date when the physical inventory count was made and make sure the quantities are correct. Then, make any Value adjustment to the individual quantities depending upon the value in the old system. When you are done, this report (and the B/S) should equal the totals you had in Sage. You may need to delete or reverse out any journal entries to the Inv. Asset account you did previously.

    Starting at the beginning date with an accurate quantity on hand (QOH) with accurate values is the only way to begin the file. You don’t want to keep making adjusting entries later. Let the purchases and sales take care of the perpetual inventory balances.

    • Hi Tim. Thank you for your help.

      I followed your advice on correcting the value and and quantities for each item and deleting my journal entries that I made in QuickBooks. Now my Inventory Valuation reports from Sage and QuickBooks match.

      When I pull a Balance Sheet in QuickBooks the Value of my Inventory Assets match the Inventory Valuation Summary. But the Balance Sheet from Sage is about $6K less than the the Sage Inventory Valuation Report.

      I am not sure how Sage came up with the inventory value.

      Any thoughts?
      Thank you,

  • I can not adjust an items cost with out if retro effecting my sales of the item in the prior transactions. Which effects prior month sales. We sell a lot of supplements who’s cost change regularly. Any suggestions?

    • Hi Kim. Changing the Cost field of an item does not affect prior transactions, as it is only the default cost put on POs and Bills. Prior period costs can only be changed if you made an inventory adjustment through the Adjust Quantity/Value on Hand window and selected the Total Value adjustment type, AND used a prior date. This would create a ripple effect on all average costs of the item(s) from that date forward. But changing it on today’s date only affects future transactions, not past.

      Either way, changing cost does NOT affect Sales. The sales prices remain the same on all prior transactions no matter what change you make to cost. It only affects the MARGIN between cost and price.

      Hope that clarifies it. Thanks.

      • It depends on HOW you adjust the item cost, and what features you have implemented. If you go back and change the cost of an item receipt, it affects transactions that occurred after that date, for example. And if you have the cost markup features enabled in Enterprise, then prices may be affected. So there are some situations where it might occur, depending on the details. But, in the NORMAL use of the program, you are correct.

  • how can you avoid your inventory from effecting your open equity balance? when you enter and item in to inventory do you have to select inventory asset account and if you don’t how will that effect your asset value?

    • Hi Shelli. I have my clients enter their items first, before adjusting any quantities. In the item setup window, you should only be using Cost of Goods Sold, Income and Inventory Asset accounts as the defaults.

      You would then use the Adjust Quantity/Value on Hand window to increase QOH and use an adjustment account. If you are making the adjustment for the setup of a new file, and using the day before the fiscal year begins, then you would use the Opening Balance Equity account. If you are mid-year, and making an adjustment for items that were not recorded earlier, then you would use an expense or COGS account, typically called, ‘Inventory Adjustment’ to balance the entry that will be made to the Inventory Asset account by default.

  • Great info on this page also reading. thanks.

    I have question, i have bought premier 2015 and using it for just invoicing, logging my til Daily Z receipts, and bank. I do not log stock within this.

    I have come from using excel for everything and i have just logged my end of year 2014 stock value.
    is it best to keep that in my excel or add it into my QB? and if i should whats the best way to enter it and to state it is 2014 year end stock value and just do that at the start of each year.

    thanks in advance.

    • Hi Aaron. Yes, you’re perfectly fine. This is a good example of using a ‘periodic’ inventory system. If you had all of your items in QuickBooks, and were tracking the ‘ins and outs’ of inventory per transaction, that would be tracking inventory ‘perpetually.’ Many companies don’t track their inventory inside of QB, but do need to post (usually at year-end) the accumulated cost of goods sold and updated inventory values in order to have this information flow into the financials. You can do this through a journal entry. Ask you accountant if you are not sure what the entry should be.

      One thing to note is that you should use your Excel spreadsheet as the ‘Detail’ of the numbers that go into QB (‘summary’) and keep a copy in a safe place. The total value of the inventory in Excel should match the total of the Inventory Asset account at year-end.

      • Thank you for that. i had a 2nd pos that i use for a stock take and sales of stationery and small computer accessories which i just print off. Laptops and custom computers are to order and rarely hold them in stock for long, so no logging there unless i have the odd laptop i did not sale over Christmas.

        I did ask my accountant and was told to just log it at the end of the year and we’ll add it as a journal entry.

        Thank you for clearing that up and i will leave it be for now. I have it all in excel so at the end of 2015 we can just enter the starting and ending stock value.


  • Hi again,
    Well first month of the year down with premier 2015. Learning as I go and a few little mistakes logging supplier invoices and credit notes but I was able to correct it.

    Looks like I have it all setup well looking at the P&L. But my drawings do not show on the P&L so the profit for the year will be off or misleading as it’s not taking my wage (drawings) into account??

    My staff wages do show up but not my drawings. Have i done something wrong?? Staff wages are coming out under expenses and my drawings under the default setting of owners drawing or equity can’t think off hand the wording.


    • Aaron, no way to give you any sort of answer without knowing a lot more about how you set things up, how you are entering the information. You don’t say anything about how “drawings” are set up in the system, how you use them, what transactions include them. You should work with a knowledgeable advisor who can sit down with you and look at your file.

      • Thanks for the reply Charlie, maybe this will help.

        I am a sole trader the way as well.

        In Chart of accounts i have setup the following
        Owners Drawings (Equity)
        Staff Wages (Expense)

        When either paying my staff his wage or taking a drawing i do the following.

        Write Cheques -> my staff & I are entered as employee to make it easier to find in the list, so i just select either or.
        Then i select expenses tab then if its a drawing, the account selected is Owners Drawings or for staff its Staff Wages and then select checking account the money comes out off.

        Now on my P&L my staff wages show but not my drawings. I am guessing this is correct as drawing down from the business what it owes me as such.

        Now if i select Report – Balance Sheet i can see my Drawings under Capital & Reserves


        • As Tim, your question is way off the topic. And it sounds like you aren’t in the US, I’m guessing, so I don’t know what might be different in your location as far as accounting. Your original question was why your drawings don’t show on your P&L – the way you have it set up, if this is in the US, sounds correct, and owner drawings aren’t considered an expense, so they shouldn’t show on the P&L, if you are a sole proprietor. But, again, in a different company than the US, things might be different.

          You need to talk to your financial advisor.

          • Thank you both for the help. I completely forgot this was inventory. I’ll try seek help from an accountant.

            All the best,

  • Hello,
    I have an issue with the last item on the list…I purchased a business from my family with everything already in quickbooks. We have about 25000 inventory items, however, inventory was never done correctly in that the qty on hand was never adjusted. They never did physical inventory, and tons of items over 7 years were given out as samples, so there are a lot of items with a negative on hand. If I adjust them to the current and correct qty on hand I am going to have a huge income adjustment. What do I do?
    Thanks for any help with this issue,

    • Kerri, stop what you’re doing! That’s my first advice. You’re ‘throwing spaghetti at a wall to see what sticks!’ If a physical inventory count was never done, then likely all of your previous years financials are off. You need to get your entire inventory process straightened out, of which taking a count is just one part.

      Please reach out to me to discuss, because your situation needs more help than can be provided in a blog.

  • I am trying to close the books; but i get this message

    “You can’t close the books when any product has a quantity-on-hand of less than zero as-of the prospective close date.”

    I’ve checked my product list and there are no negative quantities. I’ve isolated the date to February 20, 2012 as I was able to close up to that date. Are there any work arounds; i’ve already called QB and it’s way over their head

    • Miriam, you asked that same question in my other blog. What QuickBooks product are you using? This article is about the desktop product. The only place I’ve seen that error message is with QuickBooks Online. If you are using that product then make sure your product list includes the “inactive” items, and check those for a negative quantity.

  • I found the article and all the comments very interesting and somewhat helpful. I am facing a problem when I compare the Inventory Valuation Report to the Balance Sheet. They do not agree and I’m not sure where the discrepancy is. I need help with 2 things: 1) how do I find the problem and 2) (and most importantly…) how do it FIX the problem?

    • Hi Debbie. In answer to your first question, there are two reports we run to find the errors:
      1) An ‘Item Listing’ report for Inactive Items. If you have quantities on hand of ‘inactive’ items, negative or positive, the value for those items still show up on the Balance Sheet, but drop off the IVS report. To run the report, on the Item List, go to Reports => Item Listing at the bottom. Customize the report to include ‘Active Status,’ then Filter the report under Active Status for ‘Not-Active.’ Run the report. If you find items with a QOH, you will need to: a) temporarily make the item active; b) use the ‘Adjust Quantity/Value on Hand’ window to adjust the quantity down to zero; and c) re-inactivate your item. After making the adjustments, I would run the report again to make sure you have ‘caught’ them all.

      The second report is a custom report to show any transactions that were posted directly to the Inventory Asset account(s) by mistake. All postings to this account should be made using an inventory item. A common mistake people make is that they use a vendor Bill, check, journal entry or inventory adjustment itself and use this account to post to directly. Doing so affects the B/S, but not the IVS report because the user is not using the Item tab.

      To run this report, go to Reports => Custom Reports => Transaction Detail. On the Display tab, under Columns, find and select ‘Item’ and then Sort By: Item. Change the Dates field to, ‘All.’ On the Filters tab, choose Account, and then select the Inventory Asset or IA parent account, and click OK to run the report. Under the Item column you will probably find blanks. The transactions that didn’t use an item will ‘float’ to the top of this report. Scroll down until you get to the last transaction that doesn’t use an item. Whatever the account balance is at that transaction, you will need to make a journal entry to reverse it. By doing this you are reversing out all of the transactions that added to inventory but did not specific the items being purchased (and thus left off the IVS report).

      Once you take these two actions, you will probably find your Balance Sheet and IVS report in agreement or close to it.

  • Hi Tim,
    Unfortunately I’ve sold “negative” on-hand items and wondering how I can fix this in Quickbooks? I pre-sold x amount of books, but to create an invoice I had to show the inventory being sold. Today I came across your article and realized my error. What is the best way to correct the invoices, which I’ve already collected payment on (some at least)? The actual inventory of items will be received in a few weeks. Should I enter the inventory items and backdate them as received before the pre-orders invoice were issued so that QB corrects itself? I’m a QB novice, so your help in correcting this would be very much appreciated.

    • Hi Pete. You have several things at work here. Let’s break it down.

      If you have QuickBooks Premier or Enterprise, you want to be using the Sales Order transaction for recording the pre-sales. This will allocate product to these sales, so that when it comes time to ship, you’ll know how many of each product you are committed to sending. Plus, they don’t deduct from you Quantity on Hand numbers. If you are using only QB Pro, I would strongly recommend you upgrade to Premier to get this functionality. It’s only a couple hundred of dollars, and worth the investment in your case.

      When collecting ‘pre-payments,’ it’s best to use ‘Sales Receipts’ to record the payment and an Other Charge-type of item to record the deposit and set up a ‘liability’ for the prepayments you are collecting (they are technically liabilities since you owe this money back if you are not able to fulfill on your promise of the order). Once you save the Sales Receipt, the liability is put on the books.

      To set this up (only have to do it one time), first create an ‘Other Current Liability’-type of ledger account and call it something like, ‘Customer Prepayments.’ Then, create an Other Charge-type item called,’ Prepayments.’ Set both the Expense and Income account fields to the new ledger account.

      Use the new item on the Sales Receipt as you receive the payments. For the invoices you’ve already done, you can go in and ‘swap out’ the inventory items you used for this one. This will correct your negative inventory problem.

      Finally, when the time comes to ship the books, create new invoices for the actual items. In the last line, enter the Prepayments item, but put in a negative dollar amount to reflect what they already paid. In most cases, the total of the invoice should now be zero, and the inventory will get deducted at the proper time.

      You can also run a ‘QuickReport’ on the new general ledger account and have it total by customer name so that you can track each customer’s ‘total’ at any given time.

      I hope that helps. Thanks!

  • Tim,
    Thanks for the article. I am a QB Pro user. #1 is what I have a question about. Did not carry an inventory for many years, but had to start doing so in 2013. Kind of complicated things for me. I am not a genius at this, so I want you to tell me if I am doing it correctly or not. I try not to have to adjust my inventory at all, but occasionally I have to. If I have 3 widgets on a shelf and QB says I have 5, then I use the Adjust Quantities on Hand procedure and select an Expense Account (Inventory Adjust – Take Away) and reduce the quantity (i.e. -2). If I have 5 widgets on the shelf and QB says I have 1, then I do the same thing except I select my Income Account (Inventory Adjust – Add More) and increase the quantity (i.e. 4). So am I doing this correctly or not? My accountant, bless her soul, has given me conflicting answers. Help??? and thanks…

    • Hi JT. Separate accounts for ups and downs of inventory are not necessary. One simple, ‘Inventory Adjustment’ account is fine. It should also be a Cost of Goods Sold (COGS) account, not expense or income. This way, you can also run a QuickReport on it at any time to do an analysis of WHY your counts are off. It’s just as important to investigate and find out the reasons for inventory discrepancies as it is for which financial ‘bucket’ you put the transactions into.

  • Thank you for this list! I started using QB’s 3 years ago with very little accounting experience and I feel like I have done ok. Seeing this really helps me understand (a little) better what I can/should be doing better.

    On #9, am I understanding correctly that as long as I date (post) an addition to inventory before the sale of items on that addition my values of the items will be correct? Example: Recently I had a customer who needed some new items quickly. I received and delivered them to the customer on April 2nd. On April 4th I received the receipt for the items from my vendor but I posted the purchase on March 30th when it was charged to my credit card. Have I done that in a proper manner? Thanks, Randy

    • Hi Randy. Yes, that’s correct. As long as the purchase is dated the same date or prior, you should be fine. As long as you have a positive balance at the time of the sale, then QB can calculate the Cost of Goods Sold.

  • HELP! My company is my wife and I. The only inventory control we have ever done is to correct and enter the actual inventory the last day of the year. This has worked fine until the 2015 QB upgrade. We now show a minus $2.4 million!!! We are unable to move forward and my QB pro advisor appears stumped. We really need the online bill pay and payroll services. What can be done to correct all of the negative inventory values so we scan move forward? HELP!!!!!

    • Hi Brian. Only taking a physical count at the end of the year leaves you vulnerable to negative quantities during the year, which can lead to data corruption. It’s always best practise to at least take ‘cycle’ counts of different segments of your inventory several times during the year, and check your, ‘Inventory Stock Status Report’ frequently to spot negative quantities before they cause problems.

      The 2015 upgrade should not have had any effect on the balance of the inventory. Did you perform any ‘Total Value’ adjustments in the file? These can cause havoc, especially when trying to go from a negative quantity on hand to a positive QOH, and adjusting the value at the same time. I would check your ‘Inventory Valuation Detail’ report for the year. Scroll down the ‘Average Cost’ field and look for anomalies that throw the value off, or into negative territory. Drill down and correct the errors.

      Not sure what you mean about needing the, ‘online bill pay and payroll services,’ unless you’re looking for a consultant to point you in the right direction for these products. If so, contact us to discuss these.

      If you are unable to find the sources of the problems, contact us at to help you. Thank you.

  • I replied to your email so please check. My deep knowledge of QB doesn’t exist. Possibly tomorrow you could remote to our computer and point us in the right direction. This is becoming a desperate situation for our company and my wife and I. We thank you for your quick replies and for your imminent help. Then you very much.

    Brian Seretsky
    Raintree Supply

    • #7, purchases, as Tim says, use the ITEMS tab to purchase or receive an item if you are using one of those transactions. Just don’t post directly to the inventory asset account, either on an EXPENSES tab, or in a journal entry. Use the features in QB that are provided to save you time and effort.

      #8 is related. Just don’t do it. Don’t post journal entries to Inventory Assets. Use a transaction (and the Items tab) like a bill, check or something.

  • I recently discovered part of the problem with negative inventory.
    We use P.O.s for purchases and assign parts to a customer. This flags me when invoicing that I have parts assigned to a customer.
    Most of my customers have multiple units on site. We often purchase parts for more than one unit. We invoice per unit.
    The problem arises when you select the items that are listed in the ‘Add Time/Costs’. You cannot change the quantity. If 25 items were ordered for a customer, and when selecting the items from the Add Time/Costs, you are not given the option to select the quantity. On the invoice, I select the quantity used as 10. After I save and close the invoice, I can make another invoice for that customer but when I select the ‘Add Time/Costs’ there is no longer any items assigned to that customer. There should be a quantity of 15!
    When looking at the Item List, the items were not returned to inventory either. Quickbooks just threw away the 15 parts. On the next invoice where I used the other 15 parts, my inventory now shows that I have a zero quantity, and if I sell the parts, I get negatives! Where do my parts go?

    • Mark, purchase orders are ‘non-posting,’ meaning they, in and of themselves, do not affect inventory quantities. By checking the box ‘billable,’ you are simply telling QB that you want to invoice your customers for the items on the PO. You didn’t mention doing any, ‘Item Receipts,’ which would increase your inventory before ‘going negative.’ Without an Item Receipt, of course you are going to have a zero quantity on hand (QOH), and then doing customer invoices only drives the quantity negative. This is the same as if you didn’t even use a PO: by just creating an invoice for a customer without receiving any of the items in will create a negative balance.

      As for changing the quantity billed to a customer, yes, QB assumes you are going to bill the customer for the entire line on the PO or Item Receipt. If you only want to bill a customer for part of the order, then you have to separate out the item into two (or more) line items on the purchasing transaction. Then, of course, do an Item Receipt before billing the customer.

      I hope this helps you understand what is happening.

  • Hi! I am having trouble in QBO and can’t seem to find clear advice for my specific issue. My company needed to add several hundred item numbers in a short amount of time, so we put together an import template and loaded them all into QBO. The problem is, there were quantities from the source data left on the import sheet and these quantities were added to our inventory. This has caused the inventory to be recorded before the Purchase Orders were entered, thus opening us up to double recording when the orders are completed and invoices are received. Logic told me to go into the items and adjust the quantity on-hand back to zero… the only account choice we can see with QBO is the Inventory Asset account when the item has been designated to track inventory. In my research one user said that QBO would automatically adjust to the proper expense account which we have indicated is our COGS account. However, now I have an Inventory Shrinkage number that is through the roof and a P&L with a big loss, when all that should have happened is that a number went into inventory, and then came back out. FYI, all activity occurred in the same period.

  • What a great article! Wishing my company had seen this before ever setting up inventory in QB. If anybody has some advice they can provide on my situation below, please let me know!

    I am new to QuickBooks, but have managed to become fairly adept considering I’m self taught. I’ve been using Premier 2015 for about 9 months now and where I do sometimes struggle is with inventory. We are a small manufacturing firm and when I joined the company, one of the things I was tasked with was ‘fixing’ inventory. The company had been using inventory to purchase and track some parts, but not others. However, they had almost all items set up as inventory parts or assemblies. Therefore we have A LOT of items with negative inventory. As a result, our inventory asset account and inventory valuation summary do not match.

    I’ve caught a bit of break in that we are also in the process of setting up all new part numbers and we’re in the process of moving which will require us to do a good inventory count. Therefore I have a chance to “start fresh” (sort of). For the ‘old’ items, I plan on zeroing out all quantities on hand. Looking for the best suggestion as to where to post the adjustment. An inventory adjustment account set us as COGS account? The actual COGS account? All items would have initially been posted to the COGS account when they were purchased.

    Once I’ve got all inventory zeroed out, I plan to inactivate them (since I’ll be building all new parts). But I’ll need to figure out what to do about the mismatch between my inventory asset account and the valuation summary since they are out of synch due to us accumulating negative inventory. I assume I’ll need to make a journal entry to one of those accounts to make it match the other, but I’m not sure which account is the best to make the journal entry to, nor where the offsetting entry should go. Looking for any advice there! In my mind, if I zero out all the inventory, the inventory asset account should be $0, but I doubt that’s the way it will play out!

    Finally, I’ve got my ‘new’ item list sorted and parts are now correctly labeled inventory vs. non. I will do an import to build all my new items. However, I have one question when it comes to that… if I include quantity on hand and cost in my import file, it doesn’t seem to do anything to my inventory asset account. It just creates an entry for $0 and posts the offsetting entry to opening balance equity. Since this isn’t a new file, it doesn’t seem right to post anything to opening balance equity. Plus the amount is $0 anyway. Is this because there is no average cost for the ‘new’ items yet? Do I then need to do an inventory adjustment and adjust the value? Since this is an initial build of items, it doesn’t seem right to post the adjustments to an inventory adjustment account either. But perhaps I post it to the same inventory adjustment account as I did the ‘old’ items I zeroed out and they will wash each other out to a certain degree. Again, looking for some advice here.

    BTW, I did bounce a lot of this off our accountant who is a supposed QuickBooks certified expert and he was no help! He doesn’t have a clue when it comes to inventory. 🙁

    Thanks in advance for your help!

    • Your issues are complicated enough that it isn’t a good idea to try to give you specific advice via comments in the blog, without having hands on the file. Yes, many QuickBooks ProAdvisors don’t understand the complexities of inventory, so your experience there isn’t unusual, unfortunately.

      Which account to post adjustments to depends on many factors. That is one of the reasons why it is best to get someone to look at your file directly, rather than try to give comments.

      If you email me directly, I can give you some referrals to people who would be able to help you with this, depending on where you are located. My email address is in my author profile. Or, contact Tim directly – his website is listed in his author profile.

  • Hi Tim,
    Thanks for your article… one of my clients has done exactly this… Inactivate items that still have a quantity – negative or positive – on hand. I’m doing a sanity check that the way to correct this is to make the product ‘active’ again, perform the inventory adjustment, then make ‘inactive’?
    Many Thanks

  • Love this article. I’ll try to make this quick.

    Version: Quickbooks 2013 MAC

    Problem: Tracking Raw Materials.

    Here’s the situation. I have 8 spices. I buy them in bulk and know their price per gram. From those 8 spices, I make a single blend and sell 3 different sizes.

    My logic goes like this. Each of the 8 spices are non-inventory parts that, when added to a PO, post to the Raw Materials Inventory account, increasing the account by the value of the purchase. (At no point inside of Quickbooks do I know how much I have in raw materials, but I keep this in a spreadsheet.)

    I create a blend, which depletes each of the 8 spices by a certain amount and I combine the blend with the plastic spice bottles/sifters/lids (also non-inventoried parts.)

    Each size that I sell is an inventoried item that I’ve created. For example, a 1oz bottle. After making a full batch which could be about 150 bottles, I weigh the raw materials, determine the cost of the missing material based on price per gram, then divide that total cost by the number of units I make.

    Where I’m stuck is how to add those 150 units to my inventory.

    • With the Mac version I don’t think you have “inventory assembly” items. I don’t work with the Mac version so I am not sure about that. This makes it complicated, as Inventory Assembly items would make it take less work.

      In general, you would use an Inventory Adjustment to the finished item to increase the quantity and value (I am assuming that you have the “inventoried item” as an inventory part type of item). This will post the value to the inventory asset account for that item. You have to enter an account for the balancing posting, use your raw materials inventor account where the value of the spices is found.

      • In the MAC version, the list of types of accounts available in the Adjust Quantity/Value feature include Bank, Fixed Asset, Equity, Income, COGS, or Expense type accounts. Anything set as “Other Current Asset” such as inventory are not accessible. Would it make sense to just classify the the “Raw Materials Inventory” account as a Fixed Asset so I can access it for adjustments?

        • Interesting. That isn’t a restriction in the Windows version. Another reason why I don’t like the Mac version for anything other than a service business.

          I can’t really give you specific advice here, as I don’t work with the Mac version at all. I wouldn’t classify things as “Fixed Asset” as I don’t know what implications that would have in QB for Mac.

      • I got it.

        Set Raw Materials Inventory account to “Other Current Asset” type.

        Create Non-Inventory Item that posts to this account on purchases.

        Purchase and receive item.

        Create Inventory Part that combines multiple ingredients and calculate a cost outside of Quickbooks, then manually set the cost in the Item details. Set this item to hit the “Finished Goods Inventory” account.

        Create one unit of the blend and Adjust Quantity by one. The Raw Inventory will be depleted by that amount and the Finished Goods will increase by that amount, balancing out.

        Invoice customer for one unit. COGS increases by the cost of one unit, Sales increases by the retail price, and the cost of the unit is removed from the Finished Goods Inventory asset account.

        In theory, I should be able to divide the cost of each unit into the value of the Raw Materials Inventory to determine how much inventory I actually have.

        Then, if I weigh all of my material I can compare the physical inventory against the Raw Materials Inventory account and make a general ledger entry to balance the physical against QB.


        • Glad you have something that you can use – way too much work in my mind. I guess I’m just not a Mac person, the Windows version (Premier) would be much easier, in my mind. Good luck!

          • Actually, once it’s set up, the only thing I need to do that isn’t part of QB is weigh the inventory and adjust the difference between what the Raw Materials Inventory shows and the actual physical inventory. Any time I create a new sellable item, I just add the quantity to the inventory and all of the accounting takes care of itself.

  • I had a problem in QB….

    Actually i added one new inventory item and made a invoice. When i checked COGS of that item, i came to know that its showing two different costs for that item.. Kindly help me out why this happened and how to solve it…

  • Wish I could do a search on posts to see if someone has asked this or not. Here is my question:

    9 times out of 10, clients are using an adjustment to add inventory, because the count has gone below zero and they want to sell it. (Plus I’ve taught them that it should never go below zero).

    Putting the adjustment value to an income account isn’t an option in the state of WA, because of how they tax on income, how they audit like bulldogs. So what account would be ideal for an inventory adjustment, when you’re typically adjusting up?

    Thanks in advance!

    • That would depend on why they are entering the adjustment, and what you might be doing about it later. It is a bit complicated.

      Are they just impatient – they want to sell it before they enter the receipt? And are they going to enter the receipt later? Create a holding account (other current asset, I guess) and post against that, but then if you enter the receipt later you will have to reverse the posting.

      Do they have a problem with theft? Or do they just lose things? Perhaps create an expense account to post against.

      Some people will tell clients to use an account called “Ask the Accountant”, which you can put anywhere (try something in the balance sheet perhaps), then the accountant has to reconcile it. I really don’t like that, but you see it pop up often.

      The real answers are (1) they should not be doing this, and (2) if they are, what is the reason, can we fix that problem? And if they just have to do it, why? That tells you what kind of account to use.

  • I have a few questions about the crazy negative inventory supplies. I work with Quick books Solutions: Manufacturing and whole sale 14.0 multi user (total of 5 staff) . I am a new staff worker (and never used Quick books before) and I am reading over the manual and trying to piece things together. One thing when we order fill out (PO’s) we always just classify all PO’s as non inventory part-shipping in. I was reading the manual and I am wondering if I should be breaking it down more: such as if we are ordering from say company A and it directly shipping it to company B should it be categorized at Shipping in: Non-inventory part. Will this mess up the inventory count (in our stock room) when we go to bill them. Question 2: If we are ordering parts from say company A but having it come straight to our own business I believe we should PO: Shipping In: Inventory part. And 3rd question: If we purchase something/rent something(still both PO’s) from Company A and direct ship to us but never sell it..just for our own use should this be Shipping in: non inventory part? -Regards out of control inventory

    • For question 3, if you’re purchasing an asset, you would simply create a PO with a non-inventory item that hits the proper expense account or asset account -OR- just create a bill for it and apply the appropriate expense/asset account, whichever you choose. Sometimes equipment isn’t of enough value to put into an asset account and so it can just be an expense. Ask your accountant.

    • Hard to answer multiple questions like this. You say you are working with non-inventory parts, so there is no inventory count or quantity.

      You should sit down with a QB expert to go over your situation as there isn’t enough information here

      • For Question A, if I’m reading correctly, you’re drop-shipping and you never actually touch the inventory, but for the moment, it becomes an asset that you are responsible for while it is in transit. If you absolutely NEVER hold this item in your possession, you could just make it a non-inventory item, making sure that the accounting on that item hits the right accounts when you order it, and then invoice your customer for the same item. But, if at any point you actually hold this item in your hand, you would probably need to make it an inventory part.

        • One quibble – just because you hold an item in hand it doesn’t have to be an inventory part. There are lots of times when you have a physical item in hand when it doesn’t make sense to make it an inventory part. Non-inventory items work well for very low cost items as well as items that turn over quickly. If the value is very, very small, and the cost is low, managing the quantity on hand can be a major chore.

  • Hi, so we have a ton of items with negative amounts. The reason is that while we only have one of each item–they rent out and are returned. Would there be an issue with just changing the quantity on hand of all the items to a number like 999,999 so that we don’t have to worry about going negative? When creating a new item–is there any reason starting off with the quantity on hand at 999,999 could cause issues?

    • Taylor, you may not realize it, but you are creating a huge mess for yourself. Negative inventory is the number one culprit for corrupted data files. You may have already caused irreparable harm to your file as a result of allowing the negative inventory for so long. I’m not exaggerating or being personal. It’s a fact: QuickBooks uses ‘average costing’ to compute the cost value of items, and when a user continually disrupts that costing valuation by selling items they don’t have, the costed gets warped, leading to data corruption. The most common evidence of this type of data corruption will start with a Balance Sheet being out of balance, or not being able to complete a Verify. Once the file gets to this point, in most cases, you have to start over with a new file. And the issue with ‘just changing the quantity on hand to a number’ [higher], is each item has a cost. If the cost is simply $1, adjusting the quantity by one million, adjusts the financials on your books by $1 million. Yes, that’s a problem.

      You need to seek out an inventory specialist, like myself, who can advise you on how to set up the inventory correctly, and use the proper workflows. QuickBooks makes it too easy for the end user to just keep using the program in a way that was unintended, causing eventual unusability of the file. You are probably sitting on a time bomb.

      • Right. This is what we assumed. It’s already too late. I was able to figure out that it was the negative inventory that was causing the problem, but was hoping there was some way out at this point. Oh well. Using Quickbooks in any way shouldn’t lead to damage to its own data file. We’re thinking about switching to some other accounting program because this is pretty unforgivable (and we’ve forgiven plenty before this).

    • You aren’t actually selling an inventoried item. You’re providing a service. It just so happens that your service is the process of renting out a company asset whereby every time that asset is returned, it drops in value depending upon its condition before and after the rental.

      I wouldn’t use inventoried items for this type of setup in Quickbooks. I would simply have a list of items with their value (updated from time to time) and enter those items as depreciable assets in Quickbooks. Then, use your website inventory tracking to keep track of whether or not they are rented out or not.

  • You just have to use it in the right way. QuickBooks was not setup as a ‘rental’ of goods program. There are workarounds for that kind of process, but if you ‘sell’ and ‘buy back’ the items, that’s not how the program was designed to work. Using ANY program the wrong way will, not unsurprisingly, lead to data corruption, or unexpected results. Would you use MS Excel to write a letter? People using the program the wrong way, without training and consultation, is why these blogs, articles and consultants exist. To keep you, the end-user on the right track. Ask the software vendor if there program is setup to match your business processes, and ask yourself if you’re using the program in a way it was intended to work.

    • Tim is the expert, so here is my question? I’m not sure why it’s not returned before it’s rented out again, thereby there is always 1 or 0 and if there is 0 it cannot be rented out. until it is put back into inventory. (It seems to me as dealing with business process is as important as helping with the software). Anyway, say they really can’t do it this way. The financials get thrown off by adding 1 to every item, for a 2 count, but how much more? At this point, they have to do an inventory count and valuation to get financials straightened out anyway, and it would ride with no more negatives. What I see is that sometimes clients need to stay in QB even if it’s not very user-friendly so I look for a workaround.

  • I can write a letter in Excel. It might not be the best way to do it–but seeing as how it’s something the program allows me to do–I’m happy that it doesn’t cause irreparable damage to the file. If writing a letter in Excel were to cause such a huge problem, I would expect the program to have safe-guards in place to prevent that from happening. I was talking with someone who’s been here longer than I have about how, because the company file wasn’t set up correctly in the first place, there was nothing we could do at this point to fix it. Now, I understand that programs will behave oddly when people make mistakes using them, but I’ve never used a program where mistakes can be made that cause problems correct use can’t fix.

    • I think that everyone can agree with you, Taylor, that if a product lets you do something, it shouldn’t cause problems. But, with QuickBooks, it can. So people like Tim and I are always trying to warn people about the pitfalls that can cause problems in QuickBooks.

  • Hello, we are in need of some help.
    When we do inventory and we start with 1’000 products and end up with 9’500, is the difference going to shop up as a sale in plus or as a loss?

    Thank you!!!!

    • Jana, I’m not clear as to what you are asking. Are you saying that you did a physical inventory count, that the computer says you have 1000, but you counted that you have 9500? Or are you asking about something else? This isn’t clear.

  • Hello Tim,
    Great Article! I was wondering if you have come across an issue we are having to deal with. We are a third party payroll provider and we create IIF files for our clients to import GENERAL JOURNAL transactions in QB. We are working with a client using ITEMS attached to the GL account and we have not been able to import this information in QB. Do you have any idea on what we can look into. Done online research but no solutions found yet. THANKS

    • Hi Lucy. You cannot import items using a journal entry. QB purposely keeps items out of the journal entry window. The quantities and values of items should ONLY be adjusted through the ‘Inventory Adjustment’ window. Also, do not use a journal entry window to post directly to the Inventory Asset account on the Balance Sheet, as this is a common error as well. The Inventory Valuation Summary report lists all of the items currently carried in QB, and the total should match the Inventory Asset account on the Balance Sheet. By posting directly to that account, you throw off the balance between the two. So, the short answer to your question is, your client should not be using JEs to affect items. You can contact me if you have further questions. Thank you!

      • Thank you for the response Tim. This is good to know. Do you have suggestions on how our client might be able to accomplish tracking their labor cost? I have seen some clients with multi-level job codes or classes to accomplish this but since I am not a QB user, I would not know this for sure. – Lucy

        • Hi Tim – I was informed by the client that they are only using items for non-inventory items (labor). Does that make a difference in whether Items are sent in the GL file?

          • Lucy, non-inventory parts are still inventory items; they are not labor! You can track job costs through Payroll Items in QB payroll or through journal entries by identifying the customer:job. But, this does not involve inventory items.

            You really need to speak with a certified QB Pro Advisor about how payroll and items are setup in QuickBooks. These are not true ‘inventory’ questions. I would advise you check out the Intuit site: to find help with your questions. Thanks!

  • Hi guys..compliments of the season I av 2 questions that’s have been affecting me when managing my reports on QB..first it’s the issue of know the normal principle of this is OS add Purchases less CS and all that but Becos my manager isn’t an accounting personal I have to break the profit and loss report to a novice view of the above but I having been able to get this breakdown anywhere on my QB..when I go to my GL I find out quickbooks has already down this calculation…secondly it’s the issue of *waybill*…like before selling your goods ,You issue a Waybill b4 invoicing those goods but all I see on QB is “estimates”
    Thanks guys

    • COGS is usually updated by QuickBooks when you either purchase/receive the item (if it is a non-inventory item, and depending how you set things up) or when you sell the item (if it is an inventory part item).

      If you have QuickBooks Premier or Enterprise (not Pro) then you have a “sales order” transaction, which you can use as a waybill before invoicing.

  • Hi Charlie! I am setting up my advanced inventory system. I have several items, that are used in assemblies but not sold individually. How can i omit those items from the list my sales team sees?

    • You can’t do that in QuickBooks, Amber. Best you can do is train the users. Perhaps change the item ID to add a code that tells them that it isn’t for resale. Or add a custom field, that you add to all sales templates as a column, and have a phrase like “DON’T YOU DARE SELL THIS!” in the custom field for the item, so it shows up.

      • Thanks! One other question. One of your 9 things is don’t create an assembly for 1 inventory. What if I need to post the sale of that item to separate income accounts, depending on the type of customer who purchased it?

        • Amber, items can only be assigned to one revenue account (and one COGS and one Inventory Asset). You can’t change it based on customer. You can manually change the account, but you would have to do it before EVERY TRANSACTION, which in a practical sense, doesn’t make sense. The Income should be a revenue ‘bucket,’ which sales of a certain item go into. If you want sales broken out by customer, or customer type, then I recommend you use classes to break out your sales groups or channels. Hope that helps.

  • Hi Tracy. There’s a lot of things that could be at play here. Perhaps Item Receipts are not getting posted? Inventory Adjustments are being done incorrectly? Inventory is complicated, and there could be many reasons for why the ‘numbers don’t add up.’ Hire us or seek out another inventory/accounting specialist to address your questions specifically. Without more to go on, it’s hard to know where to start to answer your questions.

  • We are a new Versatile Dealer and new to Sales (have mostly done service work before this) and have 2 tractors in stock that are on a LOC but not sure how to set this up on QB. We want to be able to track any costs that would go with each tractor so we know exactly what we have into them. I have the LOC account set up and the inventory asset entered so that is a wash but not sure how to track each tractor?

    • Cindy, it sounds like these tractors are FIXED Assets (items you hold onto and depreciate), not INVENTORY Assets (that you buy and sell). The LOC doesn’t matter. When you sign the contract for the item, you debit the Fixed Asset-type of account and credit a payable (usually some kind of notes payable account). As you have work done, you could also assign the costs to that account to show total value. Separately, you could also use the Fixed Asset Manager (FAM) feature in QB to track acquisition and disposition of the asset. However, this is not an inventory question, so I would refer you a certified QB Pro Advisor for details on this. Go to: Thank you.

  • I am thankful for this post. If you just work on the quantity side of inventory management it is relatively easy to understand, compared to the accounting side. It has been a luxury in the past to leave that to the accounting people. A recent project has necessitated research into this. I hope some of these comments are helpful to others.
    Company A has R&D and Manufacturing. Items are purchased for both. Some are shared. It is a matter of company policy whether to expense the items at the time of purchase or to bring them into inventory first then expense them into either COGS or the R&D area. Regardless, if the status of an item changes then adjustments need to be made in QB to account for the quantity AND valuation changes in the system. It even gets to the issue of how items are created in the first place – as inventory parts or non-inventory parts. Creating inventory items in QB would be an onerous task for R&D people since they go through many iterations prior to finalizing a design of a product. Better to create generic non-inventory parts for the purchase orders and expense them immediately. Once the design is finalized then the additional items can be created and the BOM created. The critical questions are – the amount of effort it takes to maintain the system, the number of transactions necessary to track and properly records inventory quantities and valuations; and defining the proper procedures so that things are done consistently in the system.

  • So how do you wipe all inventory from the books?
    I had a rogue employee setup inventory when I specifically told her to use non inventory part, we drop ship we have no inventory ever with no valuation at all.
    Yet I have 40k in inventory on my valuation summary and on my p&l.

    I have to remove this permanently or I will fail my audit

    • Hello. So, I assume you have that valuation because there are inventory parts (and/or assemblies) in your item list? There can also be an inventory valuation because users post directly to an inventory asset using the expense tab on bills or checks, or even through a journal entry or inventory adjustment transaction.

      If using inventory parts is the only issue, then select a date you want to make the adjustment. Use the ‘Adjust Quantity/Value on Hand’ window to adjust all of the items to zero. Once complete, edit the names on these items include ‘OLD’ or ‘DNU’ (for Do Not Use), then inactivate the items. Lastly, create your ‘regular’ non-inventory parts using the original names of the items. Run the IVS report again for the current date to make sure no transactions were made after your adjustment date (or simply make the adjustment dated today).

      If you still have a valuation, then you may have inventory parts that still have quantities on hand but were inactivated. These items drop off your Inventory Valuation Summary, but will remain in the Inventory Asset accounts. Run the ‘Item Listing’ report, customize it for ‘Active Status’ and select ‘Not Active’. Looking at the Quantity on Hand field, you will see if you have any of those items. You may also just need to check the accounts your items are ‘pointing’ to in this report for any type mismatch (i.e., COGS account pointing to an Inventory Asset account).

      If you still have an unexplainable value, reach out to a QuickBooks Pro Advisor or inventory specialist to assist you in rooting out the issue.

      Thank you, Tim Grant

  • Hi – I have inventory issues that have stymied my tax preparer. We usually do journal entries to fix things for tax season but there must be a right way that we’re missing. I own a small record store and sell used and new items. All the new items are entered correctly via invoices from vendors so I have a perpetual inventory and know when to reorder specific records. For used items, I create an invoice that lists $2.99, $3.99 etc. and I just keep it open all year, adding quantities as I need to. I need to use these exact amounts on my daily sales receipts because I balance my bank statements to the penny. I pay for records with cash at the store and have a list of all payouts, but I need to know how to “pay” at the end of the year for this invoice of all my used records. Hopefully this makes sense. Thanks! If it doesn’t, perhaps you can refer me to someone?

    • Hi Lindsey, I am a little confused by your question. If you are paying out cash for used records, why wouldn’t you just enter a bill or write a check to a vendor to show receiving the records in? That increase your inventory, and takes out cash of petty cash or your bank account. Contact us if you need more help resolving this issue. Thank you, Tim Grant

  • I have several inventory items that are in the negative. I went to: vendors, inventory activities , adjust quantities. Adjusted them all to 0………..but, it raised (I think,because it has been so long ago) my COGS or profit? I can’t have this. So I just have made them inactive, I no l longer use them anyway. Question……can I use inactive inventory items and just the name/item # to something that I keep in stock? I several inactive inventoried items that are no longer in use. I was thinking if I made them active under something that I keep in stock, I could clear up all those inactive items?

    • Hi Melissa. You’re asking several questions at once. You can’t just inactivate an item because you no longer use it. If there is still a quantity available, negative or positive, you must adjust the quantity first, before making it inactive, to zero. Also, yes, any quantity adjustment of inventory will be to a COGS account. However, if you do a full physical inventory count, this should balance the discrepancies produced in prior periods where items were not posted to COGS. Please give me a ring at 415.800.3578 and we can setup a remote session to straighten this out. Thank you, Tim Grant.

  • I am using QuickBooks Point of sale 2013 multi-store and would like to prints inventory transfer and receiving report that the headings would give me my old and new quantities but cannot do.
    Please how do I go out with the preferences.

  • Hi Tim/ Charlie,

    Need your help…Lost stock and insurance paid us. The stock is still showing in my QB as 2,750kgs.
    How do i adjust this to Zero while recording the proceeds from the insurance?

    • Hi Sam. You will do an inventory adjustment to bring the stock to zero. I would use an ‘Other Expense’ type of GL account created called something like, ‘Extraordinary Loss Due to Inventory Loss/Damage.’ This probably occurred in a prior period. Then record the deposit to an, ‘Other Income’ type of account called something like, ‘Extraordinary Income from Insurance Proceeds.’ The point is they are not ‘ordinary’ business transactions, so should appear below expenses and in the section for Net Other lncome. Make sense? Thanks, Tim G.

      • Thanks tim,

        My insurance has passed a credit note to us since we pay premiums on credit.
        The value of goods is KSH 403,740 but they have given us a credit note of KSH 313,333 thus a loss of Ksh 90,407.

        My opionon was pass below general entry
        DR; AP with respect toinsurance co; KSH 313,333
        DR: Loss on insurance KSH 90,407
        Total Dr Ksh 407,740

        CR: Stock account Ksh 407,740

        Then adj inventory to Zero….Question..on Adjustemt account, do i use stock account or expense acc(loss on insurance)?

  • Is it possible to accomplish inventory tracking (in detail) in QBO Plus & is this the proper area to present my question, please?

    If so, #7 is a concern. Client is used car dealership. Need to code automobile purchase to Inventory, then add on all expenses (including labor) to recondition this auto for resale. Once sold, total amount in inventory for this one auto should move to COGS and profit to Sales. The net profit will also be used to calculate salesperson commission.

    • Hi Macyn. You’re asking several questions here, so I’ll try to answer them as best I can within this forum.

      No, for ‘most’ companies, QBO is not ‘robust’ enough to handle inventory on its own. It’s only useful for very small distributors with no need for sales orders or assemblies.

      In your case, in order to ‘roll up’ the costs of parts, materials and labor into a finished good, you will have to use an ‘assembly-type’ of inventory item. These would only be available in third-party inventory programs, if using QBO (such as, ‘SOS Inventory’ or ‘Dear Inventory’, two of our favorites), or either in QuickBooks Enterprise or a third-party inventory program that connected to it. The used car would be an inventory item, as well as the materials or other parts used to recondition it. Labor would be a Service item. These would be components that would go into a unique Bill of Materials for the final car you produced. You could also track the VIN here using the serial number tracking feature in Advanced Inventory, although, I’m not entirely sure there would be enough characters in the field to do that.

      Once the assembly is complete, the COGS will get recognized once the sale is made. QB does not break out profit per transaction to calculate sales commissions, but they are report writers, and I would suspect programs out there that could do that for you.

      Hope that helps. Tim G.

  • Using Quickbooks Pro – I understand that errors are created when creating an invoice for an item not in stock. Do these errors still occur if this is Pending Invoice. I am wondering if can Pending Invoices be used as a way to track back-ordered items? Once the item comes into to Inventory, the invoice would be changed to Final. Thank you!

    • Hi Jeff. Making an invoice ‘pending,’ puts inventory ‘back’ into stock, and changes the accounting so the impact to the Inventory Asset and COGS accounts are zero. Other than running a ‘Pending Sales’ report, I don’t see how this method would help much.

      A much better process would be to upgrade to QB Premier. In it, you would have Sales Order transactions, and the automatic ability to track backorders on both SOs and Invoices (a backordered state creates another column to show how many are on backorder). You will also have many more features of an inventory program and inventory reporting than you do in Pro (which was never really intended for inventory-type clients). The price for Premier is also marginally more than what you paid for Pro.

      I hope that helps!
      Thank you,
      Tim G.

  • Hello Tim,

    We purchase used equipment, refurbish it and resale. Can these purchases be logged in as assets and put into inventory to show on the balance sheet until sold?

    • Hi Kym. Sorry, I thought I had responded to your question, but for some reason it didn’t get posted. Let me try again.

      ‘Inventory’ is an asset on the Balance Sheet, and is a ‘roll-up’ of the Inventory Valuation Summary report. Do not confuse it with other ‘assets,’ such as Fixed Assets which are capital equipment.

      To turn a used item into a refurbished unit, you have to use the ‘assembly-type’ of item. Assemblies include a Bill of Materials which in turn includes components that go into the final product (think of the parts that go into a bike). You can add other items to the assembly, which might include replacement parts and service items that will add value to the finished good. Once all of the components are in, you would go to the inventory module and perform a ‘build’ transaction to deplete the components and increase the quantity of the completed unit. It sounds like each one would be unique, so unfortunately, you would probably have to create a BOM for each unit. However, if the client is buying them in large lots, and if they are using QuickBooks Enterprise, then they could vary the Build transactions to fit each completed unit they are doing.

      Just some suggestions. That’s generally how it works. Thanks, Tim G.

  • There are a number of considerations that should be made before creating a “inventory item”. QB works best when you have exact configurations. In other words multiple units of the same thing. Consider that the “Item” is used in order processing, manufacturing, transportation and inventory. So ask the question – can you identify what it is and distinguish it from other items? Is that necessary? There are quantity and financial implications. Will a Bill of Materials be created? Does the BOM change frequently? All the associated costs can be implemented into the system for each finished goods. However if each unit is customized then this is a laborious task to create one for each unit of product. Hopefully you can see this is a complicated question to answer. Highly dependent on your situation.

    • I have a trucker that had a major accident so he switched to doing this, and it’s been really lucrative. I use Fixed Assets on the chart of accounts for that purpose. I make a header “Dump truck”, then subs for Cost, Improvements, Sell Price. It’s a bit weird, because he does this for a profit, so the header gets negative once he sells for more than he buys and improves (refurbishes). Use those words and it lines up nicely in alphabetical order and all tax-preparers will understand your numbers. I can’t imagine it being clear in inventory.

      I’d like to hear what others might do as I’m about to go into this again with a company that is going to do this, plus lease it for awhile, lol.

  • Hello and thank you for the great information in the article.

    My company creates custom builds for customers and we also sell just the parts used in those builds. We are dealing with inventory issues relating to the entire process. Right now, our process is to create the sales order for Item A. Item A needs Parts 1, 2 &3. We create a purchase order for the parts and send it to the vendor. So far, everything is working smoothly. Once the parts arrive, we create an item receipt for the parts and our inventory shows we have them on hand as of May 1. We build Item A on May 2, ship it May 3, and invoice May 4. The bill from the vendor arrives and is dated May 5. This is where the issue occurs. If the bill is dated after we have built and invoiced the Item, it sends all the parts back into our inventory and marks the assembly as pending. Since we also sell just the parts, our sales team in getting the wrong information about what we have on hand to sell to other customers.

    What is the best way to resolve this issue?

    • Hi Zach. This is a common problem. It happens as a result of Intuit initially setting up the ‘Item Receipt’ and the vendor ‘Bill’ as the same transaction. The only difference between the two is the, ‘Bill Received’ button which changes the header of the transaction and, if a ‘Bill,’ allows it to appear under Accounts Payable. The problem most clients have is that they enter one date for when the items are received, and then change it to the Bill date based on the actual vendor bill. Since the Item Receipt and Bill are, in essence, the same transaction, QuickBooks now ‘thinks’ the items were received at a later date, and hence throws any assemblies that previously had enough stock into a Pending status based on the later received date.

      In my opinion, this was a programming engineering mistake when QB was first step up. They tried to ‘fix’ it a few years ago by coming out with another ‘feature’ called the, ‘Enhanced Inventory Receiving’ function to split up the two transactions into separate ones. However, this ‘feature’ creates as many problems as it solves, so is not recommended for files already created (see other articles in the blog regarding ‘EIR’).

      We advise our clients to simply leave the Item Receipt date alone, and do not change it based on the vendor date. Instead, change the ‘Due Date’ to conform to the vendor’s terms requirements. This way, your builds will remain built, and from a stocking standpoint, you should not have an issue. Your accounting person may have fits, but you have to choose operational efficiency over complete accounting accuracy, in this case.

  • I found a 10th thing not to do with Quickbooks inventory. And that is to have any item on an invoice with a positive quantity and a $0 price. That will make Quickbooks take the item out of inventory, but it wasn’t really sold.
    I can send you some screen shots if you like.

    • Miriam, I understand completely. And, not only does it take the item out of inventory, but it ‘skews’ the costing of the item because now you one have one item taking down the average cost of the item! I’ve seen a lot of clients make that mistake when giving away samples. (Better way is to show item at full cost, with another line showing 100% discount). Thanks for your comment!

  • I was just hired as a replacement to clean up inventory mistakes that have been ongoing for a while… When doing inventory adjustments on items, I also need to adjust the numbers that they “on order” from vendors. (Those have been off as well. Products we order from our vendors take 4-8 months to receive.) If I adjust the numbers we have “on order”, to the correct number, how would I balance that out?? That would then change old purchase orders we have with vendors from months ago, causing all sorts of things out of line. ? I’m just trying to get a clean slate with their inventory and it’s a mess.

    • Hi Chris. You’re not alone. A lot of people find themselves in that position. Inventory is tricky, and making a change can impact other persons or departments.

      So, you have to ask, ‘why is this change necessary’ when it comes to the purchase orders. Is it a change management wants to make ‘mid-stream’ in the ordering process, or is the supplier having issues in fulfilling the original order? If the order request has changed, possibly because of a change in demand, then work with the supplier to come up with a new order. If they haven’t shipped, you can adjust the existing order and resend it, or cancel it and submit a new one. But make sure your communication with the supplier is clear! To them, a purchase order is a contractual request, involving their time, resources and planning, so changing that order can have financial and relational consequences. If the supplier themselves is having a problem fulfilling an order or orders, work with them to see how much they can supply, and when. If their ability to fulfill your orders is impacting your operations, then it may be time to find alternate suppliers.

      Either way, realize purchase order (and sales orders) are ‘non-posting’ transactions, meaning the creation of one does not impact your inventory levels or financials. It’s only when the items are received and put on an ‘Item Receipt’ that this becomes an asset and a liability. You can always go back and change an old, open PO, but just because you changed it on the books, doesn’t mean the supplier will know about your change in the order. Work with them to get what you need.

      As for inventory adjustments, that only impacts inventory you currently have on hand in your warehouses, not what’s on order. Let the ‘Inventory Stock Status by Item’ report be your guide for keeping with what is ‘On Hand’ versus what is ‘On Order.’

      I hope this answers your question. Thanks, Tim G.

  • I have a peculiar issue. I am a used car dealer. Car is inventory to me. I incur a lot of expenses to make the used car usable. All these expenses added to inventory value. But when I book these cost it gives effect to quality too. Thus my inventory qty is car+repairs which is incorrect. Pleas help

    • Hello Abhijit. Think of a used car just like refurbishing a used piece of equipment. You might replace parts, and add improvements with painting and environmental protection. In the process, you also incur labor to provide these enhancements, either through employees or outside contractors. All of these costs add up to the total cost at time of resale into a finished good.

      That’s where assemblies come in. The used or previously owned vehicle is just one ‘component’ that goes into the assembly’s Bill of Material, or BOM. The other components are the replacement parts, and the labor, as Service-type items. Perform a ‘Build Assembly’ to clear out the components, and to create the finished good. That will capture the true Cost of Goods Sold at the time of resale. Then, simply inactivate the item once it’s sold.

      One note: the original car’s name cannot be the same as the ‘finished’ car, as you must have unique names in your item list. You could use the original name, then add a number or letter after the name (or some other naming logic) to distinguish it. Thanks! Tim G.

      • Personally, I don’t like using inventory items to track “inventory” of things like cars, depending on how much turnover you have. You fill up your item list (as you say, each car has to be a unique item in the list), items that you use one time only. And using an assembly item makes for a lot of work, if you are turning over a lot of cars then it adds to the work to manipulate the assemblies (specially if you are using Premier, not Enterprise), and the more work it is the less likely you are to do things in a timely fashion. It does also depend on how fast your inventory turns over – if you buy/repair/sell cars in a short period of time then it just doesn’t make sense. If you are refurbishing a small number of cars, and it takes a long time, then perhaps it would make sense.

  • It is one thing to keep track of assets and another thing to track costs. I agree with Charlie’s comment but that does not solve the original question. Stated another way, how can the costs be tracked without created a lot of work?

    I’m thinking out loud. Costs do not need to be explicitly stated all the time. Service Items may vary in costs but can be approximated many times. Also, just because a service item is created does not mean that it can not be altered every time it is used for a production build. Service Items do not draw from inventory, so we can not have it both ways. A choice has to be made. Also a Bill of Materials can be created that is generic in nature. E.G. 1 unit of product uses:
    1) Minor parts
    2) Major parts
    3) Major Assembly Costs #1
    4) Major Assembly Costs #2
    5) Painting
    6) Other minor costs

    Therefore after assembly occurs then the actual costs are gathered and the “Build” is modified for the items that vary significantly from the average costs. You could even identify the items used as parts (but are not Inventory Items) in the posted “Build”. Service Items could be used to represent parts but with not impact Asset inventory.

    The choice comes down to putting in the extra effort of creating items for unique parts or representing the costs at the time of actual assembly. The later method saves some time. The first is an explicit method and the later is an implicit method. If you are building a satellite, the engineering bill of materials is explicit. However prior to the engineering being completed then a implicit BOM can be created for cost approximation. This is similar in nature to the used car repurposing that was the original inquiry.

    We could make this more complicated and have pseudo-BOM’s where a template BOM is copied and modified each time, with and without inventory. Multiple BOM templates could be used to save time and confusion. The real question is how explicit you want to be about costs and tracking time of costs.

  • Hi Tim, thanks for your reply. I think for better comprehension let me give one example. I bought a used car, I give a unique number to this car say # 5555 and I book it as inventory. So my inventory is (qty) 1. Now I bought/used say wiper, brake pad, oil filter for this particular car # 5555. When I book these costs my inventory cost/value goes up. That ok with me. But real issue is with booking these expenses my inventory qty against this # 5555 also goes up. It shows as under:
    Car # 5555 1
    Repairs/Maintains — wiper 1
    Repairs/Maintains — brake 1
    Repairs/Maintains — oil filter 1
    Total 4

    So physically I have only 1 car inventory but book shows 4. This is my problem.


    • Hi Abhijit. The original automobile, the wipers, the brakes, the oil filters, etc. are all ‘inventory part’ items. As you perform an Item Receipt/Bill into QuickBooks for them, they are each increased in quantity by the number received.

      The next step is to create an ‘Assembly’ type of item that will combine these ‘components’ into one finished product for resale. This is done in the Bill of Materials for that assembly. Once the ‘BOM’ is complete, you will go to the ‘Build Assembly’ function under the Inventory dropdown to create this finished good. When you complete the ‘Build Assembly,’ the components will be taken out of inventory, and you will be left with just one finished car, with all of the costs of the value-added items included.

      I hope that helps.

  • Hi
    I am facing one peculiar problem. I am used car dealer. Often I do trade in. In some cases Trade in value is higher than car sold. In such a case QB does not allow me to generate a negative sale invoice. Also it does not allow to generate credit note with negative value.
    Take example:
    Car Sold 10000
    Car Trade In 12000
    I to pay 2000 to my customer
    how to book such transaction?

  • I have an inventory Part (Item A) that gets shipped to a Vendor. They add their component and then returned it to me as “new” completed part to sell.

    I have created the following in QB’s:
    1. Inventory Part “Item A”
    2. Other Charge – checking box to use in an assembly –For the vendor part attached to our item.
    3. Assembly Item – For the completed charging cable that we will sell. It includes Item A and the Other Charge noted above.

    I have a PO for 750 completed charges, using the created ASSEMBLY item noted above. My problem is that when I create the item receipt for that assembly item, the chargers in Item 1 do not get reduced by the finished good.

    How do i create the final assembly part, offset the original inventory part (Item A) without having to create a “build” in QB’s everytime?

    • Hi Amber. I don’t have all of the details, but I’ll take a stab at this. If I understand you correctly, you are:
      1) Creating a purchase order for Part A to a supplier, and have the part shipped to an outside contractor (OC).
      2) OC purchases Part B on your behalf, then assemblies the two parts into the finished good (FG) for you
      3) FG is shipped to your warehouse.

      If would be helpful to know if you are using the Advanced Inventory function in QBES Platinum edition or not. With AI, you can track multiple locations. Without it, inventory is assumed to be received, built and shipped all from one place.

      For #1, you create a PO, send it to your supplier, then you should get a confirmation receipt at the OC. At this point, I don’t know why you made the second part an Other Charge item. It’s just that – a charge, and not a physical item. QB only counts ‘inventory part’ and ‘assembly’ parts as items. Service, non-inventory and OC items are simply expenses.

      For #2, the outside contractor should be sending you a bill for those parts, as well as a bill for the assembly service (if not the same bill). If you are not using AI, then you would ‘receive’ in the second part, then create one Build Assembly to consume the components and create the FG.

      For #3, without AI, there’s nothing left to do. With AI, you would probably transfer the two parts from the outside contractor location to your location, and perform the Build Assembly function there.

      In either case, you should:
      – have the second item as an inventory part
      – perform a Build transaction that consumes both ‘parts’
      – handle any services with bills

      I hope that makes sense to you. You can reach out to us for a consultation, if you need it. Thanks, Tim G.

      • Thanks Tim.

        We use AI, so this all makes sense.

        Item #1 – is a part that we purchased and have in our inventory currently.
        We are taking it out of our inventory and sending it to the OC.

        The OC takes Item #1 we provided, attaches it to their component at their warehouse, and returns a FG to me.

        With the least amount of transfers and builds i am trying to:
        1. Create a Purchase Order to the OC for the FG they will be supplying
        2. Reduce our inventory count for Item #1, that we are taking out of inventory and supplying to the OC.

  • Amber,
    I sense from your question that you are trying to save extra work, if possible. A couple issues come into play – transit times, costs, proper inventory accounting and tracking of inventory. We dealt with contract manufacturing of food products. Taking short-cuts in transactions leads to assumptions later, on how to best correct values and quantities. E.g. The transit time between manufacturing and warehouses was 2-4 days. There were also ownership issues as to when we owned the inventory and it became an asset on our books. We even had transactions into and out of an in-transit location. If you setup and use the available transactions proper then all quantities and values get adjusted as each event occurs. It is also easier to identify problems quickly.

    Yields were also a major consideration. We bought the raw materials and put in our best Bills of Materials, taking into account reasonable manufacturing losses. When the books were closed at the end of each month, we wanted to watch for problems outside “reasonable losses”. These could have been manufacturing issues or damages in storage or during transit.

    Too often I see people think of their business system simply as an accounting tool. In my mind it is a management system for tracking, monitoring and controlling costs/inventory/performance. The drive is to collect and analyze useful information that allows you to do these things, yes in the most efficient way. I would just encourage you to understand the ways ways your company should be using the system. Then determine which information is needed to accomplish those ends.

  • Hi, we are a small construction and agricultural equipment dealership that sells some used pieces, which first require service and repair. What is the best way to attach the costs of servicing the equipment (both billable time and consumables and parts) so they are accurately represented in CGS? Each of these units needs to be in inventory but is a unique stand alone item. This seems most similar to the motorcycle customizers above for which it was suggested to enter each piece as a separate ‘Job’. In this case would the finished product just be manually adjusted into inventory with the total associated cost? Thanks. Crista

    • Crista, essentially you use Service, and non-inventory parts as components to the final build to add repair work and other parts to the finished good. Please contact us if you would like a consultation on the specifics of how that would work in your case. Thank you, Tim G.

  • Hi Tim,

    My question is that if I am currently have inventory received under a specific for example, part number “ xxxx” and I edit that part number to “xxx2”, then sell that inventory under the edited part number do I lose my history?

    We wanted to change part number without creating a new item. We did. Now it seems some of our inventory counts are not correct. Looks like we may have lost some of the purchase history or sales history for that part number.

    Is this possible?

    • Michelle, no, if all that you changed was the name slightly, it doesn’t affect the history of the item. When you create an, ‘entity’ such as a customer, vendor, item, etc., there’s a unique identifying number that goes along with it that the user never sees. Changing the item name/number only changes what the user sees; it doesn’t impact the record number, and thus the history. If your counts seem off, I would try running a QuickReport on that item for all dates and looking for inconsistencies, and/or running the Inventory Valuation Detail report and viewing the Average Cost column to see if any averages have changed dramatically. If you still need assistance, please contact us. Thank you, Tim G.