You’ll probably come across the terms “inventory asset” and “COGS” when using the Quickbooks accounting software for your business. Unfortunately, many business owners are unfamiliar with these terms, resulting in bookkeeping errors when they record and manage transactions. If you plan on using Quickbooks to handle your business’s financial transactions, you should understand inventory assets and COGS. Otherwise, you won’t be able to properly track inventory. So, what do these terms mean exactly?
The first element that we’re going to discuss is inventory account. Assuming you set up an inventory list in Quickbooks, you’ll see this in your account. The Quickbooks accounting software automatically creates an inventory account as well as a COGS when you set up an inventory list.
Not to be confused with an inventory account, there’s also an inventory asset. When you buy an inventory item, the respective account will debit the item inventory asset account while subsequently crediting your bank account. This isn’t debited to your expense account, simply because it’s an asset that you can sell at a later time. Basically, though, inventory assets are used for tracking inventory purchases. This makes it an essential element for retailers — local and online — as well as other businesses that sell a physical product to customers. Of course, not all businesses have inventory, nor do they need to worry about inventory assets. But if your business does sell a physical product, you should consider using inventory assets in Quickbooks to track your inventory purchases.
COGS stands for “Cost of Goods Sold,” which lives up to its namesake by reflecting the total cost of purchased goods. When your business sells an inventory item, you’ll see the COGS updated to reflect this transaction. You can run a Transaction Journal report to see the sales receipt, which also reveals the COGS. Intuit explains that COGS affects many elements of a business’s Quickbooks account. It affects the Balance Sheet, Profit and Loss statement and more.
Hopefully, this gives you a better understanding of inventory accounts, inventory assets and COGS. To recap, these three elements are used primary for inventory tracking in Quickbooks. If your business needs to track inventory, you should consider using them. They are available in all versions of Quickbooks Desktop.
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