How does “Inventory in and out” work in QuickBooks Online Plus?

This article will guide you on how to handle inventory step by step.

First, let’s start with understanding what “Inventory in and out” means in QBO. It means you will be adding (in) purchased inventories to Inventory Assets account that is current assets type to the chart of accounts and you will be subtracting (out) sold inventories quantity/cost when you create Sales Form (either Invoice or Sales Receipt), which will be posted to COGS account.

Yes, you do need Plus plan to have Inventory feature in QBO. Inventory feature is not available in QBO Simple Start and QBO Essentials.

You will use the vendor forms (expense, check, bill) to enter “inventory in” (add to inventory asset). Journal Entry form will not work to enter “inventory in”.

Blank Vendor Bill Form
Click on the screenshots below to enlarge them

Let’s look at the blank vendor bill form (above) before making any feature setup changes. The form has “Account” column (part of chart of accounts), but no “Item Details” with columns like “Product/Service”, “Quantity” and “Rate”. We do not enter “inventory in” yet. We go through the steps below to make “inventory in and out” work:

STEP 1: Enable products and services settings ON

• From the home page screen
• Company Gear (upper right corner)
• Settings
• Company Settings
• Sales
• Products and Services
  1. Show Product/Service column on sales forms ON
  2. Track quantity and price/rate ON
  3. Track quantity on hand ON
• Save / Done

STEP 2: Create new products and services (or item list) for inventory item

• From the home page screen
• Company Gear (upper right corner)
• Lists
• Products and Services
• New
• Fill out Product or Service Information
• Inventory Name
• To Track Quantity on Hand (for inventory items)
  Select checkbox > I track quantity on hand for this product. This enables inventory cost accounting.
• Initial Quantity On Hand (enter “0” for new item)
• As Of Date = today’s date
• Inventory Asset Account = Inventory Asset (Default account. Do not select other account or create new one.)
• Sales Information = Description on sales forms (Invoice or Sales Receipt)
• Purchasing Information = Description on purchase forms (Purchase Order)
• Price/Rate = Sales Price (will see it on Invoice or Sales Receipt)
• Cost = Purchase Price (will see it on Vendor Forms like Bill, Check, Expense)
• Income Account = Revenue/Sales account from the Chart of Accounts (will later see it on P&L Report)
• Expense Account = COGS from the Chart of Accounts (will later see it on P&L Report)
• Checkbox if product is taxable. To setup sales tax (left blue navigation bar > sales tax)
• Save and Close

STEP 3: Enter “Inventory in” by using Vendor Forms (Bill, Expense, Check) and selecting Item Details section (Not Account details section)

• Choose a Vendor (name of the company you bought inventory item)
• Fill out necessary information and move to Item Details section
• Product/Service = inventory item you want to add in (in this example, mountain bike)
• Description should prefill once you enter product/service item. You can change it if necessary to track more information.
• Qty = quantity purchased per vendor bill
• Rate = purchase price per vendor bill
• Amount = total purchase amount per vendor bill (qty x rate)
• Save

STEP 4: Enter Inventory out by creating Sales Forms (Sales Receipt, Invoice)

• Choose a Customer/Client (name of the company you sell inventory item to)
• Fill out necessary information and move to Product/Service section
• Product/Service = inventory item you want to sell (in this example, mountain bike)
• Description should prefill once you enter product/service item. You can change it if necessary to track more information.
• Qty = quantity customer buying
• Rate = price customer paying
• Amount = total revenue/income amount (qty x rate)
• Save

You can run built-in Inventory Valuation Detail Report (left navigation bar > report > go to report and select the report) to review in and out of inventory product item. In this example (Item = Mountain Bike):

• Inventory “in”
  Quantity = 10
  Rate = $200
  Total Inventory Amount = $2,000.00
• Inventory “out”
  Quantity = 4
  Rate = $300
  Total Sales Amount = $1,200
• Inventory “on hand”
  Quantity = 6
  Valuation = $1,200 (6 x $200)

For the income side (you can run Profit and Loss report and customize the columns for products/services), you should have $400 gross profit (qty 4 x $100 profit per item)

• Sales = $1,200 (qty 4 x sales price $300)
• Cost = $800 (qty 4 x cost price $200)

FIFO (First-in, First-out) Method

QuickBooks Online uses the FIFO method of inventory valuation. As the name implies, QuickBooks Online will always consider the first units purchased (First In) to be the first units sold (First Out) and will adjust your Inventory Assets and Cost of Goods Sold (COGS) accordingly whenever sales of inventory items are entered.

Let’s expand this case by adding a few more transactions here.

As of previous example, we have 6 units left in stock. They were purchased at $200.00 per unit. Total inventory valuation amount is $1,200 ($1,200).

Let’s suppose, we purchased 10 more units of bikes at $220.00 per unit (total bill = $2,200).

• Our new total inventory valuation = $3,400 (1200 + 2200)
• Our new quantity on hand = 16 (6 from previous purchase + 10 from new purchase)
• Our new average cost = $212.50 ($3,400 divide by 16 stock units)

Let’s suppose, we sold 8 units. What would be the COGS now?

• 6 units @ $200.00 = $1,200
• 2 units @ $220.00 = $440
• Total COGS for 8 units = $1,640

#QBO Plus