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How to track inventory in QuickBooks: Managing inventory

man pulling a wagon of boxes in a warehouse, while two other men stand by shelves.

When starting a small business, knowing how to track inventory in QuickBooks is relatively easy, as you handle a smaller product base.

But based on our first-hand experience, as your company expands, your customer base grows too — and you start selling more products in large quantities.

At this point, inventory tracking becomes unmanageable on your own, and manually counting stock items is time-intensive. You risk losing track of your stock level and ending up with unfulfilled orders and dissatisfied clients.

Are you seeking to better understand how to track inventory in QuickBooks?

This detailed guide helps you answer that question and maintain the right financial balance in your business.

What is QuickBooks Online?

QuickBooks Online is a web-based accounting platform that is accessible even while you’re mobile. You can use its built-in tools to do things like: 

  • Carry out bookkeeping processes.
  • Monitor stock levels.

Organize what you buy and sell​​.

Because QuickBooks Online keeps your information in the cloud, it can be backed up for data security. This makes it easy to implement inventory security measures as the data is only accessible with the input of a password.

In some ways, QuickBooks Online is more secure than QuickBooks Desktop, which is open to anyone who has access to your computer.

Get started with your free trial of QuickBooks Online here

Why is it important to track inventory?

Knowing how to track inventory in QuickBooks lets you keep an accurate record of expenses and avoid costs related to inventory errors. It’s important to run inventory reports to: 

  • Keep tabs on how frequently you need to replenish stock.
  • Know which of your products or services are popular.
  • Stay organized and profitable.

QuickBooks lets you use barcodes and scanners to simplify and speed up product management for incoming and outgoing items. In our experimentation and usage, efficiency is streamlined with barcode scanning.

By understanding how to track inventory in QuickBooks, your replenishment orders can be optimized for better efficiency. Stock that can be monitored in real-time means your inventory:

  • Can be analyzed for sales trends.
  • Is adjusted for returns and damages.
  • Is maintained with accurate pricing and the tax rate.

Does QuickBooks Online track inventory?

After putting it to the test, QuickBooks Online does track inventory. Knowing how to track inventory in QuickBooks Online lets you:

  • See insights on existing stock.
  • Monitor sales and set reorder points.
  • Configure restocking notifications.
  • Organize items that can be categorized by product type.

If applicable, you can also add non-inventory items and services to these sales documents.

But does QuickBooks Online track inventory the way you need it to? Let’s find out.

How to enable advanced inventory in QuickBooks

Advanced inventory is a feature available in QuickBooks Enterprise that lets you allocate how inventory can be configured for multiple locations, such as different warehouses or vendors.

If you are not using QuickBooks Enterprise, you’ll need to purchase it to use the Advanced Inventory feature.

To enable advanced inventory in QuickBooks Enterprise:

  1. In the “Edit” menu select “Preferences.”
  2. Under the “Items & Inventory” section, find the “Company Preferences” tab.
  3. Check the “Inventory and Purchase Orders are Active” box.
  4. Select the “Advanced Inventory Settings” button.

How does inventory tracking work in QuickBooks Online?

You can retrieve accurate data on your products and stock levels by understanding how to track inventory in QuickBooks Online.

Before getting started with the QuickBooks Online inventory system, we determined through our tests that you must activate the inventory tracking option. Then, you can add inventory goods and track every item you sell.

The QuickBooks-generated report helps you check inventory status and know if you need to restock.

Below are the steps for how to track inventory in QuickBooks Online.

Step 1: Turn on inventory tracking

Before adding any inventory goods, you must enable the inventory tracking tool in QuickBooks Online.

If you have not yet activated the QuickBooks Online inventory feature, you should do so by following the directions below:

  1. Go to the QuickBooks “Settings” menu.
  2. After that, select “Account and settings.”
  3. Choose the “Sales” tab.
  4. Click “Edit” in the “Products and services” section.
  5. After that, navigate to “Sales forms,” and activate the “Show product/service” option.
  6. You can toggle the “Track inventory quantity on hand” and “Track quantity and price/rate” settings here.
  7. Click the “Save” button and select “Done.”

We have found from using this product that QuickBooks Online defaults to the FIFO (first in, first out) approach, meaning that the first item you purchase is the first item you sell.

However, note that not all accounting software programs employ the FIFO technique.

Step 2: Add in the inventory items

You can gradually add inventory items and services to QuickBooks after enabling the inventory feature in QuickBooks Online.

To properly add stock in QuickBooks Online and track product quantities, ensure to:

  1. Enable the inventory tracking option if you haven’t already.
  2. Add the product name, category, and SKU, ensuring the SKU is at least three characters long.
  3. Add the product count, inventory assets account, and a low stock warning.

Step 3: Keep track of the sales you make

After entering all inventory goods into QuickBooks Online, you should track when you sell them.

As indicated by our tests, you can do so in two ways:

  1. Prepare an invoice if you expect to get paid at a later date.
  2. Include a cash memo/note if the client paid cash upfront.

QuickBooks Online reduces on-hand stock counts depending on the amounts you specified on the cash note or invoice.

You can quickly check what is on order and what is on hand by hovering your mouse cursor over the quantity you have entered for the item for the details to show.

Step 4: Restock the inventory

After ordering your new stock inventory in QuickBooks, you can track what’s in order and what you get from your vendors.

The quantity will automatically increase according to the number of products you receive.

If you run out of stock, you can reorder it easily. Here’s how:

  1. Check the “Sales” tab for low-stock or out-of-stock products.
  2. Generate the purchase order and mail it to the supplier. This order will inform the producer of your order specifications.

Remember to set restocking alerts on QuickBooks to get notified when you’re low on goods and need to restock.

Step 5: Use the reports to monitor the inventory status

You can assess various information with QuickBooks-generated reports, such as: 

  • Top sellers.
  • Money spent.
  • What is currently on hand.

You can also use reports to check inventory progress and status.

This is everything you need to know when it comes to understanding how to track inventory in QuickBooks Online!

Why should you use QuickBooks Online for tracking inventory?

Drawing from our experience, you should use QuickBooks Online to track inventory because it helps you handle several suppliers and pay them on time.

Apart from that, QuickBooks Online also lets you:

  • Keep track of all your inventory items and quantities.
  • Sort items according to whether they are taxed or not.
  • Update inventory amounts automatically.
  • Create purchase orders and distribute them to merchants.
  • Keep track of overall sales and profitability at each of your locations.

Do you need more advanced features when considering how to track inventory in QuickBooks Online? Keep reading to find out whether its inventory tracking advantages outweigh its limitations.

Advantages of QuickBooks Online inventory tracking

While QuickBooks Online includes popular features to help you manage your material and products, here are three key advantages of using it specifically for inventory tracking:

  • Easy inventory tracking: QuickBooks Online tracks inventory at all stages, making it easier for your team to understand your operations and fulfill orders quickly.
  • Simplified accounting: You can keep track of your inventory, sales orders, production, finances, and customers all in a single place.
  • Less admin time: QuickBooks Online requires little manual effort to keep your sales orders in sync. This way, you significantly reduce administrative time to focus on other important parts of your business.

QuickBooks inventory management tips

Set up products and services correctly

An organized system of invoices and sales receipts makes it easy to consistently update inventory records. QuickBooks has features to:

  • Perform regular reconciliation.
  • Set up inventory tracking.
  • Record purchase orders that can be customized with specific categories.

Some businesses use first in, first out (FIFO) or last in, first out (LIFO) strategies to sell inventory based on when they receive inventory items.

If you utilize FIFO or LIFO costing methods, you can set up your inventory so it is synced with purchase orders. That makes it easy to train employees on inventory procedures so they know if older products need to be sold first.

Use the reorder point feature

It’s easier to stay on top of your stock levels when your system is set with reorder points that alert you when inventory runs low.

QuickBooks will adjust inventory levels based on your purchase orders so you don’t have to conduct physical inventory counts as frequently. Also, your inventory should be audited for discrepancies so that your numbers are more accurate.

Knowing when stock is scheduled for regular cycle counts helps you monitor sales trends and seasonal demand.

Regularly update inventory quantities

While you can update inventory quantities manually, CRM (customer relationship management) integrations take care of these tasks for you.

For example, if you integrate with third-party inventory management software, you ensure your stock:

  • Is integrated with e-commerce platforms.
  • Is linked with vendor information.
  • Is integrated with sales data.
  • Is documented with detailed notes.

While your inventory is updated regularly by a CRM platform, your stock should be reviewed monthly for inaccuracies.

Although you might know how to track inventory in QuickBooks, CRM software automates and simplifies the process.

Conduct periodic physical counts

An accurate inventory requires periodic audits to verify that your records match the stock in your warehouse. Your data needs to be reconciled with physical counts to make sure it reflects what you have on hand.

Also, your physical stock needs to be validated against sales receipts and should be checked against invoices. Oftentimes, this information is reported in the end-of-year financial statements for tax purposes.

Monitor inventory reports

QuickBooks can calculate totals and produce simple inventory reports, but you may want to consider the installation of CRM software to track your data across all your accounts.

Use assembly items for bundled products

The inventory assembly feature in QuickBooks lets you sell multiple products in a bundle. Rather than manually listing each item as sold, you can subtract the items automatically from your inventory.

This feature saves time when you create sales receipts or invoices, or enter bills for inventory purchases. This is because you can list bundles as one product while you still account for individual items.

Track inventory across multiple locations

If you are wondering how to track inventory in QuickBooks when you need to set up multiple locations or warehouses, it’s possible using QuickBooks Advanced Inventory.

Note that this feature is only available in QuickBooks Enterprise.

Limitations of QuickBooks Online inventory tracking

QuickBooks Online is excellent for financial management. But our findings show that when it comes to manufacturing management, there are a few limitations. QuickBooks:

  • Does not support multiple locations: The software works well only when dealing with a single location or warehouse. It is unable to track inventory across multiple locations.
  • Lacks serial number tracking feature: This is a disadvantage for manufacturing business owners who track their products for quality control standards with serial codes.
  • Cannot track assembly orders: This is vital if your business outsources material from different locations to assemble the parts to create a product.

Key takeaways

Despite being a phenomenal accounting tool, do you know how to track inventory in QuickBooks Online the way manufacturing businesses need it to?

In reality, our research indicates that QuickBooks lacks the functionality to track more extensive inventory across multiple warehouses. It also doesn’t provide synchronized stock levels if you’re running your business on different e-commerce platforms.

That said, you can complement QuickBooks Online’s shortcomings with a specialized inventory management system.

Automation tools save you time and make inventory management easier. Method is a cost-effective solution that automates inventory tracking and reporting. 

With Method, you can effectively prevent accounting mistakes caused by inefficient inventory management.

Learn more about the capabilities of Method:CRM with this video.

QuickBooks Online inventory tracking FAQs

Can I track inventory manually in QuickBooks Online?

Yes, you can track inventory manually in QuickBooks Online. But QuickBooks Online Plus users can leverage the built-in automatic tracking feature.

Can QuickBooks Online track inventory in multiple locations?

No, QuickBooks cannot track inventory in multiple locations. QuickBooks facilitates the tracking of inventory quantities on hand per location. Using it to run multiple warehouses for your business is challenging.

Can you track inventory in QuickBooks Desktop?

All versions of QuickBooks Desktop include basic inventory tracking features. However, if you need advanced features or need to track inventory across multiple locations or vendors, you may need to upgrade your QuickBooks plan.

If you seek professional guidance for complex inventory needs, consider integrating with a CRM solution like Method to add this flexibility to your QuickBooks account.

How to turn off inventory tracking in QuickBooks

If you’re using a different platform to track your inventory, you may wish to turn off inventory tracking in QuickBooks.

To turn off inventory tracking in QuickBooks:

  1. Click the “gear icon” at the top right corner of the screen.
  2. Under “Your Company”, click “Accounts and Settings.”
  3. Select “Sales.”
  4. Navigate to “Products and Services” and uncheck “Track inventory quantity on hand.”
  5. Click “Save” then “Done.”

How do I set up inventory items in QuickBooks?

You can set up inventory items in QuickBooks by selecting “Items and services on the homepage and clicking “New” under the item list. Choose “Inventory part” in the drop-down menu and add the necessary details.

Sign up for your free trial of Method:CRM today!

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