How to Track Inventory in QuickBooks Online (including, how to enter sales in QBO)

Manually tracking inventory in QuickBooks Online, especially for Essentials and Simple Start users, requires more hands-on management than the automated features in the Plus and Advanced versions. Here’s a more detailed breakdown of how to manually manage your inventory:

1. Create an Inventory Asset Account

  • Go to Settings (gear icon) and select Chart of Accounts.
  • Click New to create a new account.
  • For the Account Type, choose Current Assets.
  • In the Detail Type, select Other Current Assets.
  • You can give the account a specific name that reflects the type of inventory, such as “Inventory Assets – Electronics,” for better organization.
  • Click Save and Close.

You may create multiple asset accounts if you have different types of inventory (e.g., one for electronics and another for clothing).

2. Create a Cost of Goods Sold (COGS) Account

  • Follow the same steps to access the Chart of Accounts.
  • Click New, and for the Account Type, choose Cost of Goods Sold.
  • Select the most appropriate Detail Type that matches your inventory, like “Supplies & Materials – COGS” for materials used in products you sell.
  • Name the account for clarity, such as “COGS – Electronics.”
  • Click Save and Close.

Manually Tracking Purchases and Sales in QBO Essentials and Simple Start

When You Purchase Inventory

  • Record the purchase using Checks, Expenses, or Bills, depending on how you pay for the inventory.
  • In the Account field, select the inventory asset account you created. This increases the value of your inventory in your accounting records.

When You Sell Inventory

  • To record a sale, go to + New and select Journal Entry.
  • On the first line, enter a Debit to your COGS account for the cost of the product sold. Use the cost, not the selling price.
  • On the second line, enter a Credit for the same amount to the inventory asset account. This decreases your inventory value to reflect the sale.

Keeping Your Inventory Up to Date

  • Regularly review your inventory assets and COGS accounts to ensure they accurately reflect your current inventory levels and costs.
  • You may need to adjust these accounts periodically for loss, damage, or discrepancies discovered during physical inventory counts.

Reporting and Analysis

  • Use the Reports feature in QuickBooks Online to generate financial statements. While these won’t show detailed inventory levels, they will reflect the overall value of your inventory and the cost of goods sold.
  • For detailed inventory tracking and analysis, consider maintaining a separate inventory management spreadsheet or system that you update alongside QuickBooks. This can help you keep track of individual item quantities, locations, and specific costs.

Manual inventory tracking in QuickBooks Online Essentials and Simple Start requires diligent record-keeping and regular reconciliation with physical inventory counts. While it lacks the automation of the Plus and Advanced versions, it still provides a solid foundation for managing the financial impact of your inventory on your business.

Automated Inventory Tracking in QuickBooks Online (Plus and Advanced)

Inventory tracking is automated for QuickBooks Online Plus and Advanced users and provides real-time updates. Here’s how to set it up and use it:

1. Turn On Inventory Tracking

  • Go to Settings > Account and Settings > Sales. In the Products and Services section, enable Track quantity on hand and Track inventory quantity on hand.

2. Add Your Inventory Items

  • Navigate to Products and Services and select New to add an inventory item. Enter the product name, SKU, category (optional), and initial quantity on hand. Specify the inventory asset account, sales price/rate, income account, purchase cost, and expense account.

3. Manage Sales and Inventory Levels

  • When you sell inventory items, create an Invoice or Sales Receipt. QuickBooks automatically updates your inventory levels, decreasing the quantity based on the items sold.

4. Restock Inventory

  • QuickBooks alerts you when it’s time to reorder inventory. Create purchase orders directly within QuickBooks, and when you receive the inventory, mark the items as received. This automatically updates your inventory levels.

5. Use Reports for Inventory Insights

  • Access inventory reports under the Reports menu to view inventory valuation, sales, and stock level details. These reports help you make informed decisions about inventory management.

Now, It’s Your Turn

If you’re managing inventory manually with QuickBooks Online Essentials or Simple Start, consider upgrading to Plus or Advanced. These versions offer automated inventory tracking that saves time and enhances accuracy with real-time updates and automatic adjustments after sales. You’ll get alerts for restocking, access to detailed reports for better decision-making, and more insights into your inventory’s performance. 

Upgrading to QuickBooks Online Plus or QuickBooks Online Advanced means less time spent on manual entries and more on growing your business, making it a strategic move for those looking to streamline operations and boost efficiency.