About the QuickBooks inventory feature

Q If I sell products, why should I track inventory with QuickBooks?

The inventory feature in QuickBooks gives you information such as the following:

  • How much of each inventory item do I have in stock?
  • How much did each inventory item cost?
  • For each inventory item, what do I have on order with vendors?
  • When is it due to arrive?
  • When should I reorder each inventory item?
Q If I sell products, are there disadvantages of tracking inventory in QuickBooks?

The main “disadvantage” is that you must let QuickBooks know about every sale and every purchase of every product. For most users, telling QuickBooks about product purchases is easy, because QuickBooks records product purchase information when you use the inventory commands in the Vendors menu. However, for some users, telling QuickBooks about every product sale could be time consuming.

To tell QuickBooks about the sale of every product, here are your alternatives:

  • Write an invoice per sale. If you issue invoices anyway, this is easy. QuickBooks will automatically decrease your inventory for each item you invoice your customers for.
  • Write a “cash sale form” per sale. QuickBooks will automatically decrease your inventory for each item you put on the cash sale form.
  • Summarize your sales by item at the end of the day. You can enter this summary information (quantity sold of each item) in a cash sale form.

If you don't wish to use one of the above methods, we suggest you do not use the QuickBooks inventory feature.

Q What are some other considerations in deciding whether or not to use the QuickBooks inventory feature?

If you do manufacturing, you should consider not using the QuickBooks inventory feature. QuickBooks will track the quantity on hand of components, but it will not track the quantity on hand of finished goods. For example, if you are a bicycle manufacturer, and you have 4 bicycle tires and 2 bicycle frames on hand, QuickBooks will track that information. However, if you assemble those components into 2 bicycles, QuickBooks will still indicate that you have 4 tires and 2 frames, rather than 2 bicycles. When you sell the 2 bicycles you can write an invoice for 2 bicycles, and QuickBooks will decrease your inventory correctly and tell you it is time to reorder tires and frames. However, QuickBooks won't ever tell you your quantity on hand of bicycles. Also, QuickBooks won't automatically include manufacturing labor costs in your inventory cost of goods sold.

If you wish to use the LIFO or FIFO methods of valuing inventory, you should know that QuickBooks only handles the weighted average cost method of valuing inventory. Many people let their accountant worry about this and use the QuickBooks inventory feature anyway, but you should be aware of this limitation.

If you have a very large number of products, you should not use the QuickBooks inventory feature. QuickBooks can handle a maximum of 14,500 different part numbers or names. However, even if you have over 5,000 different part numbers you should realize that it will be time-consuming to enter and track all that information into QuickBooks.