Question

You have created an Inventory account and a Cost of Goods Sold account, but every time you add a new inventory part item to the Item List, Quickbooks creates an Inventory Asset account and Cost of Goods Sold account. Why does this happen, and how can you correct it?

Answer 1

When introduce first inventory item in inventory list Quickbooks automatically adds two accounts to your company file's Chart of Accounts

· 12100 - Inventory Asset - Current Asset

· 50000 - Cost of Goods Sold (COGS) - Cost of Goods Sold

Apart from that, each inventory item needs an income account. You are not required to use ether of the automatically set up accounts, so you can set up your own accounts, QuickBooks will assign the next available number to the new accounts

Inventory Assets

Quickbooks creates an Inventory Asset account and Cost of Goods Sold account

When purchase an inventory item, they will debit the Item’s Inventory Asset account and Credit your accounts payable, bank or credit card account. It will not be debited to an expense account because it is an asset that you can sell for future revenue and record the expense to match the income

The best way to follow inventory purchases is to run the inventory valuation Summary/details reports for all dates

Cost of Goods Sold

Generally, inventory COGS is only affected when inventory sell happened. When sell an inventory item, run the Transaction Journal Report for the invoice/sales receipt and see the Sales/Accounts Receivable transaction and will see the Inventory/COGS transactions which credits the Inventory Asset account and debits the COGS accounts.

However, if sell an inventory that do not have, can force another bills, checks, or credit card charge to adjust the Inventory Asset account and the COGS account. The amount on each side of the Inventory/COGS transaction is:

No. of Items Sold x Average Cost of Item.