How to Track Inventory & Manage Products & Services in QuickBooks Online

Overview: why the Products & services tab matters

The Products & services tab (go to Sales ▶ Products & services) is the command center for what you sell and buy. Each item you create maps to revenue and cost accounts, drives what appears on quotes, invoices, and bills, and controls how QuickBooks Online (QBO) counts stock on hand, cost of goods sold (COGS), and profitability by item.

• Plans: Inventory tracking is available on Plus and Advanced. Simple Start and Essentials do not include stock tracking.
• Costing method: QBO uses FIFO (first in, first out) for inventory valuation.
• Where you’ll work: ⚙︎ > Account and settings > Sales for global options, and the Products & services list for item‑level details and batch actions.

Step 1 — Turn on inventory in Account & Settings

1. Select the ⚙︎ Settings menu > Account and settings.
2. Open the Sales tab. Under Products and services, turn on:
   • Show Product/Service column on sales forms (recommended).
   • Track quantity and price/rate.
   • Track inventory quantity on hand.
3. (Optional) Turn on Show SKU and Enable price rules if you use them.
4. Click Save, then Done.

Step 2 — Understand item types (choose the right one)

QBO supports four item types. Picking the correct type ensures accurate reporting and stock counts:

Step 3 — Add products & services to your list

1. Go to Sales ▶ Products & services ▶ New.
2. Select Inventory, Non‑inventory, Service, or Bundle.
3. Complete key fields:
   • Name and (optional) SKU.
   • Category (helps with filtering and reports).
   • Sales information: description and sales price/rate; pick the Income account.
   • Purchasing information (if you buy it): check “I purchase this product/service from a vendor,” set a Cost, Expense (COGS) account, and Preferred vendor.
   • For Inventory: specify Initial quantity on hand, as of date, and optional Reorder point.
4. Click Save and close.

Step 4 — Set reorder points & enable low‑stock awareness

Reorder points tell QBO the minimum quantity you want on hand. When an item drops to or below this number, it appears in Low stock alerts in the Products & services list.

1. Open Sales ▶ Products & services.
2. Find the item ▶ Edit.
3. Enter a Reorder point and Save.

Step 5 — Restock with purchase orders and receiving

Create a purchase order (PO)

1. From + New ▶ Purchase order, choose the vendor.
2. Add the inventory items (and quantities) you’re ordering.
3. Save and send the PO to the vendor.

Record what you received

When goods arrive, convert the PO to a Bill if you’ll pay later, or to an Expense/Check if paid on delivery. Enter the quantity received. QBO increases Quantity on hand by the received amount.

Step 6 — Track sales of goods

1. Create an Invoice (paid later) or a Sales receipt (paid now) and select the sold items.
2. QBO reduces Quantity on hand and posts cost to COGS using FIFO.
3. Hover over the Qty field on the form to see On hand and On order details while you’re selling.

Step 7 — Run inventory & product reports

In Reports, search for and customize these staples:

• Inventory Valuation Summary / Detail — On‑hand quantity, asset value, and FIFO layer activity.
• Physical Inventory Worksheet — Use for cycle counts; enter counted quantities to update stock.
• Sales by Product/Service Detail — Revenue and quantity sold by item; segment by customer or class.
• Product/Service List — Export to audit SKUs, categories, and inactive items.
• Open Purchase Order Detail — What’s on order and from whom.
• Low Stock / Out of Stock (at the top of the Products & services list) — quick action to reorder.

Recommended workflows (Modular)

A. New item introduction

1. Create item (Inventory) with SKU, category, income and COGS accounts.
2. Set reorder point and preferred vendor.
3. Create a PO; receive via bill when delivered; verify cost and quantities.
4. Run Inventory Valuation Summary to confirm balances.

B. Month‑end inventory hygiene

• Run Inventory Valuation reports; compare to GL balances.
• Investigate negative quantities or unusual margins.
• Perform cycle counts using the Physical Inventory Worksheet and adjust.
• Review slow movers; consider price rules or bundles.

C. Price updates

• Export Product/Service List to CSV, update sales prices, and import back, or use price rules.
• Communicate changes via updated estimates or emailed price lists.

Common mistakes to avoid

• Wrong opening balances. Entering guessed starting quantities or costs skews COGS. Tie openings to a dated vendor invoice or inventory count with unit costs.
• Using expense categories instead of items. For customer‑facing sales, always use items on forms; this preserves per‑item profitability.
• Negative inventory. Selling items you haven’t received yet can create negative quantities and distorted costs. Receive stock first or use partial receipts.
• Mixing item types. Don’t convert an Inventory item to Non‑inventory to “fix” a count. Instead, adjust quantity or create a new item and merge only after data review.
• Skipping categories, SKUs, or preferred vendors. These accelerate filters, reporting, and purchasing.
• Incorrect sales tax category. Assign the right taxability for each item to avoid filing errors.
• Not setting reorder points. If you never see Low stock, you’ll reorder too late.

Helpful tips & best practices

• Naming & SKU scheme: Use a consistent pattern (e.g., CAT-SUB-0001). Keep names clear and searchable.
• Categories & groups: Mirror how you buy and sell (e.g., “Merch > Shirts”, “Parts > Hardware”).
• Ordering discipline: Use preferred vendor and lead‑time notes on items; batch PO creation from Low stock/Out of stock lists.
• Cycle counts: Count a subset weekly; reconcile variances promptly.
• Roles and permissions: Limit who can edit items or post adjustments; require attachments for large write‑offs.
• Data hygiene: Make unused items inactive rather than deleting so history remains intact.
• Pricing: Use price rules for promos; bundles for value packs; review margins quarterly.

Legal & compliance notes (U.S.)

• Costing method: QBO uses FIFO. Changing valuation methods (e.g., migrating from a different system) can have tax implications—consult a CPA.
• Sales tax: Each item’s tax category should reflect state rules for goods and services. Review nexus and taxability regularly.
• Documentation: Retain source documents (vendor invoices, receiving paperwork, and counts) that support inventory and COGS.
• Internal controls: Separate ordering, receiving, and adjustment responsibilities where possible.

Real‑world scenarios

1) U.S. small business owner reconciling month‑end

Run Inventory Valuation Summary and compare the total to the Inventory Asset general ledger. Investigate any mismatch by reviewing recent item receipts, adjustments, or negative‑quantity periods. Post necessary adjustments and lock the period.

2) Travel agency selling tour packages

Create Service items for core offerings (e.g., “Island‑Hopping Tour”) and Non‑inventory items for consumables (e.g., bottled water, printed maps). Use Bundles to package services and non‑inventory items on estimates, convert to invoices, and track profitability by package without maintaining stock for consumables.

3) Wellness clinic tracking supplies

Set up frequently used supplies as Inventory items with reorder points based on throughput (e.g., gloves, syringes). Use preferred vendors and batch POs from the Low stock list. Count high‑shrink items monthly and secure adjustment approvals.

FAQ

Which QuickBooks Online plan supports inventory?

Inventory features are included in Plus and Advanced. Simple Start and Essentials do not track stock levels.

Can I switch an item from Non‑inventory to Inventory later?

You can create a new Inventory item and merge the old item into it after cleaning historical data. Avoid changing types on a live item without a reconciliation plan.

How does QuickBooks calculate COGS?

QBO uses FIFO: the earliest received unit costs are used first when you sell.

What’s the fastest way to spot low stock?

Open Sales ▶ Products & services; the page header shows Low stock and Out of stock badges you can click to filter the list, then bulk‑create POs.

How should I choose a reorder point?

Start with: average daily sales × vendor lead time, then add safety stock for demand spikes or delivery delays. Review monthly and adjust.

What if I sold something before receiving it?

That creates negative inventory and can distort costs. Enter the item receipt/bill for the purchase with the proper date to correct quantity and valuation, then review the affected COGS.

Can services be bundled with products?

Yes. Bundles group multiple existing items—mix inventory, non‑inventory, and services—into a single line on sales forms.