QuickBooks Inventory: Why Are There Two Cost Fields in My Inventory Items?

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). 

IMPORTANT CONCEPTS:

• 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.

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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".

Comments

[JimD]

Scott,
Is there a way to have QB (Enterprise edition - ) Change the purchased cost field automatically when a new po for that item is generated?

[LouisaLancaster]

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[Nick]

Scott,

Above you quote:

"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."

Can you show me where this post is?

Cheers

[Scott Gregory, QuickBooks Expert]

Michael:

Can you clarify your post a bit - are you purchasing the exact same item from 2 different vendors and using one QuickBooks item # to do it?

Scott Gregory

[Michael Fogarty]

I am trying to record two independent supplies of an inventory item who of course use different product codes. If I record both suppliers with a similar product inventory QB code Qb will probably ask to merge them I would like to record details for both suppliers of the one inventory item? I would appreciate any clues or work arounds?

[Scott Gregory, QuickBooks Expert]

Rock Ridge:

If you are using the "receive inventory/purchase order" functions in QB, when you create a p/o, that process updates the purchase cost field automatically. From there, it then automatically updates the cost if that item is used in an assembly.

If you are not using QB for purchase orders, the only other option is a manual adjustment as you mention.

Hope this helps...

Scott Gregory

[Rock Ridge]

Scott,
How does this work with Build Assemblies? I see that my "Purchase Cost" is used in the "Build Assembly" function. I'd prefer that it would simply use the "Average Cost" so I don't have to continually change change all of my costs manually.

I appreciate your help with this,

Rock Ridge

[Scott Gregory, QuickBooks Expert]

Aleksije:

I agree with you - keep it simple as you get started with things. You can always grow into one of those other QuickBooks add-ons down the road.

For now, you can always do some analysis in Excel outside of QuickBooks for margins, etc. that include some of the costs you mentioned.

Enjoy!

Scott Gregory

[Aleksije Mitrovich]

Hi Scott,

Thanks very much for your reply. I think I will try to keep it simple just for now. Think I will end up doing something with Quickbooks as it is now. Don´t want to increase costs and conplexity as our business is really small at the moment. Had a look @ Acctivate and Fishbowl. Maybe later on....
Cheers

[Scott Gregory, QuickBooks Expert]

Aleksije:

Thanks for taking the time to post a comment.

The situation you are referring to is known as "landed cost", where the cost of the item that appears in the inventory record includes not only the base price of the item from your supplier, but other costs such as freight, etc. that you mentioned.

The bad news is that QuickBooks doesn't deal with landed cost at all - just the base cost of the unit as you have seen. You can record those other expenses when paid to a ledger account called "Cost of Goods Sold" so they show up in the right place on your Profit and Loss report - but the item itself will never capture that information.

If you truly need this "landed cost", you'd have to look at an add-on to QuickBooks such as Acctivate or FishBowl inventory. I'd be happy to send you information to my direct contacts there if you like.

Scott Gregory

[Aleksije Mitrovich]

I am having a problem in costing the items.
Whenever I receive inventory, the new average cost only considers the cost of the items from the supplier (bill), but does not considers the costs of transport, insurance or others. What is the way to do that, so everything adds up to the cost of the product?
Just starting with Quickbooks,
Thanks a lot

[Scott Gregory, QuickBooks Expert]

Alfred:

Good question - I did some checking and did not find this to be a column that can be added to the Item List screen. Bummer - we should be able to add it for sure.

The only place I see this show up is on the Inventory Valuation summary report. If you really needed it, I guess you could do some work in Excel pulling this column from this report and the other columns from other reports.

Be sure to click Help > Send Feedback Online to suggest to Intuit that they add this as an option in future releases.

Scott Gregory

[Alfred Menendez]

Is there a way to display the Average cost in the Item List screen? When you select "Customize Columns" that field does not show up.