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How to Track Inventory in QuickBooks Desktop

Inventory in QuickBooks

QuickBooks Desktop has two main ways to track inventory – using the item list and inventory assets account. The item list allows you to create inventory items, assign value and track quantity on hand. The inventory assets account tracks the total dollar value of your inventory.

Here are some best practices to follow when setting up inventory tracking in QuickBooks Desktop:

  • Enable inventory tracking when creating your QuickBooks File
  • Create inventory items for everything you sell
  • Enter purchase and sale transactions using items instead of expenses and income
  • Enter beginning inventory balances
  • Perform regular cycle counts to verify inventory quantity
  • Track inventory value in the inventory assets account
  • Run inventory reports

I’ll now go into more detail on each of these steps. By following these best practices, you’ll have an accurate picture of your inventory in QuickBooks.

Enable Inventory Tracking

The first step is to make sure inventory tracking is enabled when you create your new QuickBooks file. Select the Advanced Inventory radio button during the EasyStep Interview. You can also turn this on in Preferences after the file is created. Enabling inventory tracking allows you to track inventory quantity on hand and inventory value.

Create Inventory Items

Inventory items should be created in the Item List for any physical products you sell. Services, labor, and non-inventory parts would not be set up as inventory items. To create an inventory item, open the Item List and click New. Enter the item details including description, cost and sales price. Be sure to check the box to mark the item as an Inventory Asset.

Enter Purchase & Sale Transactions with Items

Once your inventory items are created, always select the item on purchase orders, bills, sales receipts, and invoices. Do not enter expenses and income accounts directly. Entering items creates a link between the transaction and the inventory list. This updates the quantity on hand and tracks cost of goods sold.

Enter Opening Balances

When you first set up inventory items, enter the current quantities you have on hand. Do this by making an Opening Balance Equity transaction in the Inventory Asset account. Enter the total value of inventory at cost and then itemize the quantities and costs for each item. This establishes your beginning inventory balances.

Perform Regular Cycle Counts

Cycle counting involves periodically counting physical inventory and updating the item list quantities to match. This catches errors before they become major discrepancies. Best practice is to divide inventory into groups called ABC classes based on value. Then assign cycle count frequencies – higher value items get counted more often.

Track Inventory Value

The Inventory Asset account tracks the total value of your inventory at original cost. Running an inventory Valuation Summary report shows the up-to-date balance for this account based on your transactions. Monitoring this inventory value over time ensures your books match reality.

Run Inventory Reports

QuickBooks provides several useful inventory reports to gain insights from your data. Key reports include the Inventory Valuation Summary, Inventory Stock Status, and Inventory Valuation Detail. Regularly run and review inventory reports to catch any issues and inform business decisions.


Tracking inventory properly in QuickBooks Desktop provides huge benefits for product-based businesses. Following the best practices outlined here will set you up for inventory success. Let me know if you have any other questions! I’m happy to help QuickBooks users get the most out of managing their inventory.