If you are using QuickBooks to track inventory, you've likely been wondering why there are two separate cost fields within each inventory item in your item list - the purchase cost and the average cost fields:
Purchase cost - the amount that appears in this field is what carries over to the cost column when a purchase order for that item is created in QuickBooks.You have complete control over the value that appears in this field. If you are creating a purchase order and the purchase cost for the item has increased, the new cost can then automatically update the purchase cost field of the item. Or you can simply open up the item and type in the cost you would like to appear on your next purchase order.
Average cost - the amount that appears in this field is automatically calculated by QuickBooks. When you first create a new inventory item, there are On Hand and Total Value fields available, as shown below:
Once you finish creating the item, the Total Value field is then replaced with the Average Cost field, which in this example is $12.00 per unit ($1,200 total value / 100 qty on hand).
When you sell an inventory item, the value that is in the Average Cost field is then posted to your cost of goods sold on your financial statements. The Purchase Cost field does NOT post to your cost of goods sold.
In addition, the Average Cost field is used to calculate the value of your inventory which appears on your Balance Sheet. The Purchase Cost field is NOT used in this calculation either.
- The Purchase Cost will ultimately appear on the bill you enter in QuickBooks when the item is received and/or the vendor bill is received.
In a future post, I'll share the
QuickBooks trick on how to adjust your Average Cost field, since you are not
able to make changes to it like you can do with the Purchase Cost field.
In a future post, I'll share the QuickBooks trick on how to adjust your Average Cost field, since you are not able to make changes to it like you can do with the Purchase Cost field.
Need help figuring out the inventory or other features of QuickBooks?
Connect with Scott Gregory, a specialist in QuickBooks Pro, Premier and Enterprise software @ Bottom Line Accounting Solutions.
He is also a CPA that understands the "QuickBooks side of accounting", AND the "accounting side of QuickBooks".