QuickBooks Online can track the quantity, sales revenue, and cost of goods sold for your inventory items. The inventory feature is available in QuickBooks Online Plus. You can also navigate to the data import page to turn on inventory tracking. Once selected you will see an additional message providing information about other settings that must be changed when using inventory tracking.

Here are some key points:

• The value of an inventory item in your books is the amount you paid for it.
• Recording the purchase of an inventory item increases the value of Inventory Asset account on your Balance Sheet report by the cost of the item and increases the Quantity on Hand units for that item.
• Recording the sale of an inventory item decreases the value of Inventory Asset account by the original cost of the item and decreases the Quantity on Hand units for that item.
• Recording this sale also increases the Cost of Goods Sold account (COGS) by the original cost of the item and increases the Sales of Product Income account by the amount your customer paid you for the item. The difference between the income amount and the COGS amount is your gross profit on that item.

At times, you might pay more for some units of a given product than for other units due to price fluctuations. When this happens, QuickBooks Online uses a method called First In First Out (FIFO) to manage the cost accounting as you sell units of that product. For more information on FIFO, see knowledgebase article What is FIFO, and how is it used for inventory cost accounting?.

Types of items

Quickbooks Online allows you track 3 different types of items.

Inventory items: These are items that you buy and/or sell and that you track quantities of. Inventory items require that the Tracking Quantity on Hand option be selected. Please see for more information on how to turn this option on.
Non-inventory items: These are items that you buy and/or sell, but don't need to (or can't) track quantities of. For example, nuts and bolts used in an installation.

Services: These are services that you provide to customers. For example, landscaping or tax preparation services.

Note: Items that have been added as either Non-inventory items or services can be reclassified into either category by editing the product or service. To do this, open the Products and Services list by clicking the Gear Icon Products and Services. Click Edit next the item that needs to be changed. Within the edit screen, click on Change type and choose the appropriate selection. (Please note that items which have been classified as an Inventory item cannot be changed.)

Enabling Inventory tracking

To turn on inventory tracking with quantity on hand:

1. Choose Gear Icon > Company settings or Gear Icon > Account and Settings.
2. In the left sidebar, select Sales.
3. Click the pencil next to Products and Services and mark the option Track quantity on hand.
   Note: This will enable the new item type called, Inventory item when selecting New under Products and Services.
4. Click Save.