Inventory in QuickBooks is based on average cost. If this is an acceptable method for the business, QuickBooks can work well when set up correctly and proper procedures are
followed consistently for buying, selling and adjusting the inventory item balances. With that being said, when are inventory type items appropriate and when are non-inventory type items a better alternative?
Let us start with the definition of inventory parts versus non-inventory parts. With inventory, the item is coded to an asset, a cost of goods sold, and an income type account. As the items are purchased (on the items tac of a bill, check, credit card charge, etc) the inventory balance is increased for the quantity and cost of the item. Non-inventory parts, however, only have one account and both the purchases and sales are recorded to the one account. To correct this coding error, it is possible to edit the item and check the box in the middle of the item (Pro and higher only) to use the "advanced job costing features." What the box sales on the item is not important, what is important is that by checking the box the item now has "two sides." One account for purchases and one for sales. With non-inventory type parts, the purchase is expensed and the sale is recorded as income. There is no matching between the two.
Items can be changed for coding corrections, or to change a non-inventory part to inventory. There is not any way to change the items from inventory to non-inventory (short of starting a new file). Make the corrections.carefully because it is possible that depending on what you do, all the history could change as well.
The most important aspect of using inventory is always buy it before you sell it. And never ignore warning messages if it states that you do not have enough inventory to sell.
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Bonnie J. Nagayama, CPA (925-247-0100) has been featured by Intuit in their QuickBooks Advisor Spotlight and frequently teaches and consults on using QuickBooks to its maximum advantage. For a FREE weekly newsletter of QuickBooks tips and tricks, plus many free and low cost QuickBooks resources visit www.4luvofbiz.com.