In quickbooks, I record that withdraw as an inventory asset. 'You record the purchase of inventory to an inventory asset account and the subsequent sale of the inventory does two things: 1) it reduces inventory by the cost of the product sold and 2) it increases the cost of goods sold by the same amount.' I tried finding more information on this process but if you could help walk me through it that would be amazing.

Thank you so much for the thorough response! I have a few more clarifying questions. If you switch from cash to accrual, you need to file Form 3115 (Application for Change in Accounting Method). IMO, accrual accounting provides a better picture of your business performance and it clearly reflects income which the IRS likes to see. This is a discussion to be had with your CPA/tax attorney.

In order to have inventory on your balance sheet, you need to be on accrual accounting. Should I switch to accrural? See #1 above. If your website tracks it, you can use QB solely to track the value of your inventory, not the individual items.ģ. You don't need to use QB to track specific inventory items unless you want to. When you buy inventory, assign the cost to an Inventory other current asset account. How do I record my current assets? Quickbooks doesn't allow me to add inventory items, or to reconcile the inventory asset account.

If it matters, and I should switch to Cost of Inventory, do I have to record the COGS as well? You record the purchase of inventory to an inventory asset account and the subsequent sale of the inventory does two things: 1) it reduces inventory by the cost of the product sold and 2) it increases the cost of goods sold by the same amount.ģ. In any case, you should not record the purchase of inventory as COGS.Ģ. Having said that, there is a provision in the tax law that allows you to account for inventory as non-incidental materials and supplies (thereby allowing you to be on cash basis) but you should consult with a CPA and/or tax attorney if you want to go that route. Businesses, where the sale of inventory is an income-producing factor, are required to use accrual basis accounting. That's why COGS is an expense at the time of the sale, not at the time of purchase. The reason is that you could easily offset all of your taxable income by just buying more inventory and recording it as COGS. Does it matter that I'm using COGS for Cost of Inventory? Are the two more or less interchangeable? Yes, it matters and, no, they are not interchangeable. How do I record my current assets? Quickbooks doesn't allow me to add inventory items, or to reconcile the inventory asset account.ģ. If it matters, and I should switch to Cost of Inventory, do I have to record the COGS as well?ģ. Does it matter that I'm using COGS for Cost of Inventory? Are the two more or less interchangeable?Ģ. My P&L will say $150k in sales and $0 in COGS, which isn't technically correct - those goods sold did in fact cost money.ġ. For instance, let's say in 2023 I don't buy any new inventory, and I sell everything in my shop. Therefore, the 'COGS' line on my P&L is not actually cost of goods sold within that period, it's just the cost of inventory. When I make purchases with my credit card, I categorize those purchases as COGS, and when they sell, the deposits from my website are categorize as Sales. I don't use quickbooks to manage my inventory. However, I'm realizing these assets are not documented anywhere in Quickbooks, which affects my balance sheet. I own a vintage store and currently have about $150k in 'inventory assets' aka vintage stuff in my store.

Cogs accounting for etsy