QuickBooks Inventory Tracking: A Step-by-Step Guide for Small Business Owners

If you sell physical goods, you know inventory is both your most valuable asset and your biggest source of stress. Not enough stock and you’re losing sales; too much stock and you’re tying up your cash in stock that you could be using elsewhere. QuickBooks inventory tracking gives you a clear picture of what you have, what it costs, and when to reorder, all in the same place you already look for invoices, bills, and reports.

This QuickBooks Online inventory management guide takes you through the entire process, from checking whether your plan supports inventory to setting up products, monitoring stock levels, and reading your valuation report at month-end. Short checkpoints along the way let you verify each step works before you carry on. Take your time and keep your QuickBooks account open in another tab so you can follow along.

Table of Contents

A Quick Overview of QuickBooks Inventory Tracking

By the end of this article, you’ll know how to turn on the inventory features, create products, record purchases and sales correctly, monitor low stock, make corrections, and review the stock financials. Here’s a quick run-through of the key tasks and where each one is found in QuickBooks Online.

Task	How to Navigate	Why It Matters
Check your plan	Settings > Account and settings > Billing & Subscription	Inventory tracking requires a supported plan, such as QuickBooks Online Plus or Advanced
Turn on inventory tracking	Settings > Account and settings > Sales > Products and services	Activates quantity tracking for your items
Add an inventory item	Sales > Products and services > New > Inventory	Creates the product record, costs, and starting quantity
Record stock coming in	+ New > Bill, Expense, or Check, using Item details	Increases quantity on hand and updates inventory value when received and recorded
Record stock going out	Sales > New > Invoice or Sales receipt	Decreases quantity and records cost of goods sold
Set a reorder point	Edit the item in Products and services	Flags products that are running low
Adjust quantity	Products and services > Actions > Adjust quantity	Corrects the count after a physical check
Review stock value	Reports > Inventory Valuation Summary	Shows what your stock is worth right now

Before You Begin: Know Your QuickBooks Plan

Inventory isn’t included with all QuickBooks Online subscriptions. Currently, it’s available with QuickBooks Online Plus and QuickBooks Online Advanced. The basic plans will allow you to sell products but won’t give you the ability to track inventory. Intuit is always changing its plan offerings, so it’s always worth checking what your particular plan actually does.

To check, click on the Settings (gear) icon, go to Account and settings, and then select the Billing & Subscription tab. Your current plan will be displayed at the top of the page. If your plan doesn’t include inventory, you’ll see an option to compare plans and upgrade. If you’re not sure whether you’d benefit from the upgrade, a good rule of thumb is this: if you regularly need to know exactly how many units you have, you’re almost certainly someone who will benefit from a plan that tracks that for you.

Quick check: can you see the name of your plan on the Billing & Subscription page? If so, you’re all good to carry on.

Understanding How QuickBooks Handles Inventory

Before you even go into any of the settings, it’s worth understanding the ‘why’ of the feature. If you’re tracking inventory in QuickBooks Online, then every product you have in stock has three bits of the puzzle attached to it.

An inventory asset account: that’s a balance sheet account that holds the value of the stock you currently own. It increases when you buy stock and decreases when you sell it.
A Cost of Goods Sold account: when you sell an item, QuickBooks will move the cost of that item from the asset account into the COGS account so that your Profit and Loss report correctly reflects the cost of what you’ve sold.
An income account: this records the sales price you charge your customers.

Because those records update automatically, you don’t need to make any manual journal entries when a product goes in or out. That’s why it’s crucial that you enter transactions correctly. If you simply enter a purchase as an expense rather than as a stock purchase, then QB won’t know that your quantity has gone up.

QuickBooks Online uses the weighted average cost method to calculate inventory value and cost of goods sold. This means the cost of items sold is based on the average cost of the units available in inventory, rather than automatically assigning the cost of the oldest units first. Keep this in mind when interpreting your inventory reports.

How to Utilize QuickBooks Inventory Tracking: Stepwise Breakdown

In this section, we’ll walk you through how to make the most of QuickBooks inventory tracking in a few steps.

Step 1: Enable Inventory Tracking in QuickBooks Online

Once your plan is confirmed, you can turn the feature on. It’s normally enabled by default in the plans that support it, although you’d be sensible to check.

Tap the settings gear icon and select Account and settings.
Select the Sales tab.
Go to Products and Services and click the pencil icon to edit it.
If you want to be able to select the items on your invoices, then turn on the ‘Show Product/Service‘ column on the sales forms.
Turn on Track Quantity and Track Price/Rate so that QuickBooks will record how much you sell and at what price.
Turn on Track inventory quantity on hand.
To receive low-stock alerts, enter a reorder point for each inventory item when setting up or editing its product details. QuickBooks will notify you when the quantity on hand reaches that level.
Select Save, then select Done.

If you’re in a team, only users with the correct permissions will be able to make these changes. If you don’t see the option, then you’ll need to ask your company admin for help.

Quick check: go back into the Products and Services section. Is ‘ Track inventory quantity on hand’ turned on? If so, you’ve done the hard bit of the configuration for QuickBooks inventory tracking.

Step 2: Prepare Your Chart of Accounts

When you create your first inventory item in QuickBooks Online, it will usually just create an inventory asset account for you automatically. Many bookkeepers still review the chart of accounts to ensure product costs are assigned to the right accounts.

Select Settings and then go to the Chart of Accounts.
Find an account called Inventory Asset under the Other Current Assets type and a Cost of Goods Sold account under the Cost of Goods Sold type.
If you’re selling a number of product lines, you may wish to create separate income accounts (e.g., Sales of Product Income – Apparel and Sales of Product Income – Accessories) so that your reports can show which of the lines is actually performing the best.

This is optional, but it will save you the bother of re-classifying them later on.

Step 3: Gather Your Starting Information

Adding products is a hell of a lot faster if you’ve got all the info ready. Before you start, though, you’ll need to have the following details for each product:

The product name and, if you use one, the SKU
The category it belongs to
The number of units you currently have on hand
The date on which that count is accurate
What each unit cost you to purchase or produce
The price you charge customers
The vendor you usually buy it from
The level at which you want to be reminded to reorder

The as-of date is key. That’s the date that QB uses as the starting point for your stock history, so it should be the date of your physical count. If you’re coming from spreadsheets, then a clean count taken on the first day of the month/fiscal period will make your records a lot easier to reconcile.

Step 4: Add Inventory Items in QuickBooks Online

You’re now ready to add inventory items in QuickBooks Online. For each physical product you buy, sell, or keep in stock, follow these steps to create an inventory record and start tracking its quantity and value.

Select Sales from the left-hand navigation and then choose Products and Services.
Select New in the top right-hand corner.
Select ‘Inventory‘ as the item type. If the only options you see are ‘Service‘ and ‘Non-Inventory‘, then go back to step 1 and ensure that inventory tracking is turned on.
Enter the product name. Use a clear and consistent naming convention, as you’ll be searching for it when you create your invoices.
Enter a SKU if you have one, as those can be useful for matching your items to supplier catalogs and barcode systems.
Choose a category or create a new one by selecting ‘Add new‘.
Enter the initial quantity on hand (i.e., the number of units you currently own).
Enter the as-of date (i.e., the date your count was taken).
Enter a reorder point (the quantity at which you’d like to be alerted to reorder). We’ll look at what the right number to use is in a moment.
Select the Inventory asset account.
In the Sales section, enter the Sales price/rate and select an Income account.
In the purchase section, you enter the cost per unit, select the expense account (normally cost of goods sold), and if you have a preferred supplier, then select that.
Select Save and close or Save and new if you have more products to add.

If you’ve got loads of products that you don’t want to go in one at a time, then you can import them all at once. From the Products and Services page, select the arrow next to New and then select Import to upload your spreadsheet. Intuit provides a template which shows exactly what columns QuickBooks is looking for. Take a few minutes to clean up your spreadsheet before uploading, as small formatting errors (a stray space in an item name, for example) are the most common cause of an import failing.

Quick check: open your new item and make sure the qty on hand matches the qty you’ve entered. If it’s zero, then check that the initial qty and as-of date were saved correctly.

A Note About Other Item Types

QuickBooks Online has a range of item types, and the type you select affects how your reports behave.

Inventory: the products you buy or make and track by quantity.
Non-inventory: products you sell but don’t have in stock (e.g., small supplies or things you only buy when a customer actually orders them).
Service: work you do for customers (e.g., consulting, repairs).
Bundle: a group of items which you sell as one package (e.g., a gift set). Bundles enable you to sell a number of items on one line without necessarily increasing the stock of any individual item.

If you are in the slightest bit doubtful, then yes, you do need to know how many units you have at any one time. In that case, go for Inventory.

Step 5: Record Stock Purchases Correctly

Creating an item is only half the story. Transactions affect your quantity, and how you record them matters.

Using purchase orders: if you’d prefer to actually document the order prior to it even getting to you, then go to New, then Purchase Order. Select your vendor, add in your items and quantities, and save it. Once the goods arrive, you can convert that purchase order into a bill, keeping your records in one continuous chain from order to payment.
Using Bills: When your vendor sends you an invoice, go to New, then Bill. Select the vendor and then, in the Item details section (not the Category details section), enter your products. That’s the detail that tells QB to increase your quantity on hand. Enter the quantity and cost, and then select Save and Close.
Using expenses or checks: if you’re paying for your products straight away, you can use New, then Expense or Check. Same principle really. You put the products in the Item details section and that will then update your stock.

A lot of new users will end up inadvertently entering their product purchases into the Category details section. If your quantity doesn’t go up after a purchase, check QuickBooks inventory tracking first.

Step 6: Record Sales and Let QuickBooks Update Your Stock

Once your products are in the system, sales will take care of the other side. If you create an invoice or a sales receipt and select an inventory item, QB will reduce the quantity on hand and move the cost of that item into COGS at exactly the same time.

To record a sale, go to New, then either Invoice or Sales Receipt.
Pick your customer, select the product from the Product/Service column, enter the quantity, and save the transaction.
Your sales price flows in automatically. You can, of course, change it for a particular customer if you want to.

If you go and try to sell more units than QuickBooks thinks you have on hand, you’ll get a warning that the quantity may be insufficient. It will still let you save the sale, though, and that will result in a negative quantity on hand. A negative quantity on hand is almost invariably going to be a sign that a purchase hasn’t been entered, so it’s a flag to go and look at that rather than just ignore it.

Step 7: Track Stock Levels Day to Day

To track stock levels in QuickBooks, you don’t need to dig through individual transactions. QuickBooks Online gives you several ways to check quantities on hand, identify low-stock products, and quickly review inventory activity.

The Products and Services page

Select Sales, then Products and Services.
The list has a ‘Qty on hand‘ column, and the page has flags for items that are either low or out of stock.
You can also use the filter to show only the items you need to review, which makes it easy to build a shopping list in seconds.

The item detail view

Select any product to view its history (purchases, sales, adjustments, etc.).
This is useful when you’re trying to work out why a number looks different from what you’d expect.

The Product/Service List report

From the Reports menu, search for this report to see all of your items, their quantities, and their prices in one place. You can customize the columns and export the report to Excel if you want to take a closer look.

Just make it a habit to have a quick look at your stock list at the beginning of each week. A two-minute glance is usually enough to prevent a stockout.

Step 8: Set an Inventory Reorder Point in QuickBooks

A reorder point is the level at which you want to place a new order to ensure fresh stock arrives before you run out. Getting it right is part maths, part judgment.

A simple way to work it out is to take your average daily sales x your supplier’s lead time in days and then add a small safety margin. So if you’re selling 5 units a day on average and your supplier takes 10 days to deliver, your lead time demand is 50 units. If you want to add a safety margin of 20 units to cover for busy periods or shipping delays, your reorder point would be 70.

To enter or change it in QuickBooks Online:

Go to Sales > Products and Services.
Select the product you wish to edit.
Update the Reorder Point field.
Select Save and close.

When your quantity drops to that number, QuickBooks will flag the item as low stock, and you can then create a purchase order from the item or the list. Revisit your reorder points a few times a year, since seasons, promotions, and supplier changes can affect your sales rate.

Think about it: which three products would be most damaging to your business if they all sold out next week? Start with those and set their reorder points first.

Step 9: Adjust Inventory Quantity When Reality Does Not Match

Even a well-run business will have a discrepancy between the count in QB and the actual number on the shelf. Things get damaged, things get miscounted, things go missing, things get given away as samples, etc. You can, of course, adjust your records to reflect that via an inventory quantity adjustment.

To make one:

Select New, then under the Other section select Inventory qty adjustment. Alternatively, you can go to Products and Services and select Adjust quantity from the Actions menu for a particular item.
Choose the Adjustment date.
Select an inventory adjustment account. Many businesses use an expense account called ‘Inventory Shrinkage‘ or ‘Inventory Adjustments’ to make these adjustments easy to track.
Select the product, then enter either the new quantity or the change in quantity.
Add a short note in the memo field giving the reason, e.g., ‘Annual count‘ or ‘Damaged in storage‘.
Select Save and close.

QuickBooks inventory tracking automatically updates the quantity on hand and records the corresponding value adjustment in your Inventory Asset and inventory adjustment accounts. Depending on the adjustment, the change can affect your Cost of Goods Sold or expense accounts.

A useful tool prior to making any adjustments is the Physical Inventory Worksheet (found in the Reports menu). You can print it, go to your storage area, do the actual counts, and then come back and enter all your numbers in one place.

Remember that the adjustments are for genuine corrections. If you find yourself adjusting the same product repeatedly, go back and find out why. You may be entering purchases in the wrong place, or you may have returns that were never recorded.

Step 10: Review Your QuickBooks Inventory Valuation Report

At month-end, you’ll want to know what your stock is worth. The inventory valuation report will tell you that and help you confirm your books are in order.

To open it, go to Reports in the left-hand menu, then search for Inventory Valuation Summary.
The report shows each product’s quantity on hand, inventory asset value, and calculated average cost, helping you understand the value of your available stock.
You can change the report date to see how things were at an earlier point in time.

For more detail, open the Inventory Valuation Detail report. That will list each transaction that impacted the product so you can see exactly how the quantity and value have moved over time.

Here is a simple way to use these reports each month:

Run the Inventory Valuation Summary as at the last day of the month.
Compare the total to the Inventory Asset balance on your balance sheet.
If the two figures match, your inventory records are consistent. If they don’t, review the Inventory Valuation Detail report, recent adjustments, and purchase transactions to identify the difference.
Make sure you’re comparing reports using the same date and accrual accounting method.

Matching those two figures is one of the best things you can do. It catches errors early, when they’re still small and relatively easy to deal with. If you’ve got an accountant, passing them this report regularly will go a long way toward making tax time easier.

Other reports worth being aware of are the Sales by Product/Service Summary (which will tell you which of your products/services are your bestsellers) and the Open Purchase Order List (which will tell you what you’ve ordered but not yet received).

Common Mistakes with QuickBooks Inventory and How to Avoid Them

Even experienced users will run into a few predictable problems with QuickBooks inventory tracking. Here are the ones to watch out for.

Entering purchases in the wrong section (such as Category details instead of Item details) records the money you’ve spent without updating the inventory quantities you’ve received. The products go in the Item details section of a bill or expense.
Choosing the wrong start date: if your as-of date is later than some of your transactions, QuickBooks may end up with the wrong quantities. Make sure the date you choose matches the date of your count, and be very careful when you’re entering the older transactions.
Ignore any negative quantities (a negative balance means something is missing from your records). Find the unrecorded purchase or return and deal with that rather than simply bringing the figure up to zero.
Don’t do the physical counts at all, really: software can only ever show you what you tell it. A proper count (monthly, quarterly or annually) is the only way to keep the system honest.
If you’ve mixed up item types (i.e., sold a stocked item as a non-inventory item), then QuickBooks will not in any way reduce your quantity. If you’ve come across this, then you need to go back and check your item setup before you do any wide-ranging changes.

Expert Tips for Keeping Your QuickBooks Inventory Organized

A few small habits in QuickBooks accounting and inventory make a huge difference over time.

Use a consistent naming convention. Pick a pattern (e.g., product type followed by size and color) and stick to it every time.
Use categories and subcategories. They make filtering and reporting a lot quicker as your list grows.
Record your transactions as and when they occur. The sooner you enter receipts and record sales, the fewer errors you’ll make.
Count in rotation. If counting it all at once is too much, just do one category per week.
Regularly review your reports. A 15-minute review at the end of each month is usually enough to stay on track.
If you’re moving beyond the basics, you may well want to consider add-ons. Businesses with multiple warehouses, serial numbers, or complex manufacturing may want more advanced inventory features or compatible apps from the QuickBooks App Store.

Your Inventory Setup Checklist For a Quick Review

Use this list to make sure you’ve got all the important boxes ticked when setting up your inventory in QuickBooks.

Confirmed that your QuickBooks Online plan supports inventory tracking
Turned on Track quantity and price/rate and Track inventory quantity on hand
Reviewed your chart of accounts
Gathered product names, costs, prices, and quantities
Added each product with an accurate quantity and as-of date
Entered purchases through bills, expenses, or purchase orders using Item details
Entered sales through invoices or sales receipts
Set a reorder point for your most important products
Completed a physical count and made any needed adjustments
Ran your Inventory Valuation Summary and compared it with the balance sheet

If you can tick every box, then you’ve got a proper inventory system in place, and that’s going to serve you very well as your business grows.

Final Thoughts

Good stock records are gold. They give you confidence. If you know what you’ve got, what it costs, and when to reorder, you can make pricing, purchasing, and growth decisions with far less guesswork. Once you’ve completed your QuickBooks inventory setup, entered your products correctly, and recorded your transactions, QuickBooks Online does much of the inventory management work for you. The habits you develop now (i.e., recording your purchases in the right place, reconciling your valuation report every month, etc.) are going to be worth their weight in gold in the years to come.

Start small if you need to. Add your top-selling products first, complete one physical count, and review your reports at the end of the month. As you become comfortable, you can expand your list, refine your reorder points, and explore more advanced features. If you ever feel stuck, Intuit’s in-product help, your accountant, or a QuickBooks ProAdvisor can guide you through more complex situations.

Frequently Asked Questions

Which QuickBooks Online plans include inventory tracking?

Inventory tracking is available in QuickBooks Online Plus and QuickBooks Online Advanced. The lower-cost plans let you sell products, but they don’t include inventory tracking. Since Intuit often changes plan features and pricing, it’s worth checking the Billing & Subscription tab in your account or the Intuit website to confirm exactly what your subscription includes before you go any further with your product setup.

Why is my quantity on hand showing a negative number?

A negative quantity means you’ve sold more units than QuickBooks thinks you’ve purchased. This usually happens when a bill or expense wasn’t entered, was entered without Item details, or is dated later than the sale. Check the item’s transaction history, record any missing purchases with the correct date, and your quantity should be correct.

How do I correct my stock count after a physical inventory check?

Select New, then choose Inventory qty adjustment. Choose the adjustment date, select an inventory adjustment account, and select each product to enter either the new quantity or the change in quantity. Add a brief memo explaining the reason, then save. QuickBooks updates the count and records the cost difference so your balance sheet and P&L stay accurate.

What is the best way to choose a reorder point?

Start by figuring out how many units you sell each day and how many days your supplier needs to deliver. Multiply those two numbers, then add a safety margin for busy periods or delays. Enter that total in the item’s Reorder point. Check it every few months, as seasonal demand, promotions, and changes in supplier lead times can all affect the right number.

Can I import my existing product list instead of typing it in?

Yes. Go to Sales, then Products and services. Select the arrow next to New, and choose Import. Download Intuit’s spreadsheet template, enter your product details, including quantities and costs, and upload the file. Review the preview carefully before importing. Clean item names and consistent column formatting help prevent errors, and you can edit any item afterward if something needs to change.

How do I know whether my inventory value is correct?

Run the Inventory Valuation Summary report as of a specific date, then compare its total with the Inventory Asset balance on your balance sheet for that same date. If the numbers match, your records are consistent. If they differ, open the Inventory Valuation Detail report and review recent adjustments, journal entries, and purchases to find the transaction responsible for the gap.

About The Author

Jonathan Browns

Jonathan Brown is a trained QuickBooks professional with 10 years of experience in the accounting sector. Moreover, he is passionate about helping businesses reduce the stress of managing accounts. Also, he is proficient in assisting entrepreneurs and small business owners to use QuickBooks and enhance their accounting experience.