How to handle trade-in inventory accounting in new QuickBooks Online Plus?

First aspect is dealing with how to provide credit for the trade-in item in the sales receipt. Easy answer is to say just add line for trade-in item show amount as negative. Well how to setup that item in product/service? If you set it up that trade-in item as Inventory item, it will not work. It will mess up COS and few other things. We will need to create that trade-in product as non-inventory item and create another entry to add-in quantity and cost to inventory.

For this example, let us say you are in cellphone business. You’re selling one unit of iPhone for $600 and offering $150 trade-in credit for used Samsung Galaxy phone. And, customer is paying $450 plus tax by check.

Step # 1
You will need to add one new account in the Chart of Accounts.
To add new account in Chart of Accounts:

From the home page screen

  • Select the Company Gear (located at upper-corner)
  • Select “Chart of Accounts” under Settings header
  • Select blue “New” button
  • New “Account” screen will open
  • Select Account Category = Other Current Assets
  • Detail Type = Other Current Assets
  • Name= Trade-In Inventory Clearing
  • Description = Trade-In Inventory Clearing
  • Remember to leave the account “Balance” blank
  • Save
  • See screenshot photo for reference
Trade In Inventory Clearing
Trade In Inventory Clearing

Step # 2
You will need to open new product/service item for trade-in credit

To add new item in Products and Services:

From the home page screen

  • Select the Company Gear (located at upper-corner)
  • Select Products and Services under Lists header
  • Select blue “New” button
  • New “Product or Service” screen will open
  • Name = Trade In Credit
  • Sales Information
  • Checkbox: I sell this product/service to my customers
  • Price/Rate = Leave blank
  • Income Account = Trade-In Inventory Clearing
  • Save
  • See screenshot photo for reference.
Trade In Credit
Trade In Credit

Step # 3

To Create Sales Receipt

From the home page screen

  • Select Create “+” Plus sign (upper-middle)
  • Select “Sales Receipt” screen
  • Select Customer
  • Select Payment Method
  • Under Product/Service,
  • 1st line > select new product item selling for $600 (in this example Apple iphone 5s)
  • 2nd line > select newly created “Trade-In Credit” item (in this example Samsung Galaxy as negative $150)
  • Subtotal before tax is $450.
  • Tax = $48
  • Total Amount Paid = $498
  • See screenshot photo for reference.
Trade In Credit Sales Receipt
Trade In Credit Sales Receipt

This sales receipt will handle as usual revenue and COS aspect of regular inventory item sold and also setup $150 as non-inventory asset on the Balance Sheet.
Now next step is to move this trade-in item (with quantity on hand and value) from Trade-In Inventory Clearing to regular Inventory Asset Account.

Step # 4 & 5 (together)
To add-in Used item as inventory on hand, we will create zero Bill.

From the home page screen

  • Select Create “+” Plus sign (upper-middle)
  • Select “Bill” screen
  • Create new vendor as “Trade In” (preferred name)
  • Under Account Details:
    Select Account = Trade In Inventory Clearing (this is setup as other current assets)
    Amount = -$150 (negative amount)
  • Move to Item details:
    Under Product/Service
    Select “Add New”
  • New Product or Service Information will open.

This is to setup trade-in item as Inventory (in this example Samsung Galaxy, Qty 1, cost $150)

  • Name = Samsung Galaxy Used
  • Track Quantity on Hand (for inventory items)
  • Checkbox: I track quantity on hand for this product. This enables inventory cost accounting.
  • Initial Quantity On Hand – 0 (very important, do not enter qty 1)
  • Inventory Asset Account = Inventory Asset
  • Enter Sales and Purchase Information (preferably same as name)
  • Price/Rate = Selling Price (for example $200)
  • Cost = Actual Cost (in this example $150)
  • Income Account = Sales of Product Income (selection of preferred income account)
  • Expense Account = Cost of Good Sold (default account, no need to change it)
  • Select Taxable box if this item is taxable
  • SAVE
  • See screenshot photo for reference.
Samsung Galaxy Used
Samsung Galaxy Used

Now back to “Bill” screen again.

  • You should see
    Qty = 1
    Rate = 150
    Amount = 150
  • Balance Due as well as Total should show as $0.00.
  • Save and Close
  • Done.
  • See screenshot photo for reference.
Zero Bill to clear clearing add inventory
Zero Bill to clear clearing add inventory

Now, if you back to see your inventory on hand report, you should see quantity as 1 for Samsung Galaxy Used item which is correct. Also, go back to Trade-In Inventory Clearing account, balance should be zero which is correct as well.