Skip to content
  • There are no suggestions because the search field is empty.

Using Inventory Asset Accounts to Smooth Out Your COGS

When you buy something you will inventory for a long time, the accounting is typically handled differently. 

Why this matters: If you buy a large amount of product at once, you probably don't want the entire purchase to hit your Cost of Goods Sold (COGS) the day you buy it. Doing that can make a single month's financials look worse than they really are, even though you'll be selling that product — and recognizing the revenue for it — over the next several months.

QuickBooks solves this with a feature called an Inventory Asset account, and it's simpler than it sounds.  Once the Item is set up as in Inventory Item in Quickbooks, the process just happens when you enter a Purchase or Sale in BlueTrace.

The Short Version
  • When you buy inventory, the cost goes into an Inventory Asset account on your Balance Sheet — not straight to COGS.
  • When you sell that inventory, QuickBooks automatically moves the appropriate cost out of Inventory Asset and into COGS on your Profit & Loss.
  • This means your expenses show up in the same period as the related revenue, which gives you a much more accurate picture of profitability month to month.
How It Works, Step by Step

1. You purchase inventory. Let's say you buy $50,000 of frozen perch. Instead of that $50,000 hitting COGS immediately, it's recorded as an Inventory Asset — essentially, it becomes a line item on your Balance Sheet representing product you're holding, similar to cash or equipment. Your P&L isn't affected yet.

2. You sell part of that inventory. Say you sell half of the perch you bought. QuickBooks will automatically:

  • Reduce your Inventory Asset balance by $25,000 (the cost of what was sold)
  • Record that $25,000 as COGS on your P&L for that period

The remaining $25,000 of cost stays on your Balance Sheet as Inventory Asset, since that product hasn't been sold yet.

3. You continue selling over time. As you sell more of the perch in the following weeks or months, the corresponding cost keeps moving from Inventory Asset into COGS — matching your expense recognition to your actual sales activity, rather than dumping it all at once.

The Bottom Line

Instead of one large expense hitting your books the day you buy inventory, your costs get spread out and matched to the revenue they helped generate. This gives you (and anyone looking at your financials — lenders, investors, your accountant) a much more accurate view of your margins period over period.

It's Automatic — No Extra Steps for Your Team

This all happens behind the scenes. Your team doesn't need to do anything differently — they just process sales orders and invoices as usual. For example, if you sell 5,000 cases of perch, QuickBooks automatically pulls the cost of those 5,000 cases out of Inventory Asset and moves it into COGS the moment that invoice is created.

Is This Right for Every Product?

Not necessarily. This setup is best suited for products that you hold in inventory for a while rather than ones that move in and out quickly. If you're stocking something like frozen perch that you'll be selling down gradually over weeks or months, tracking it as an Inventory Asset gives you a much more accurate financial picture. For products that turn over almost immediately, the benefit is smaller.

Checking Your Inventory Value Anytime

On top of the automatic COGS tracking, you can pull an Inventory Value report at any time to see exactly what your on-hand inventory is worth. Most clients run this at the end of each month as part of their regular close-out process, but it's available whenever you need it.

A Few Things to Keep in Mind
  • This requires your products to be set up as Inventory-type items in QuickBooks (not Service or Non-inventory items), since only inventory items track through an Inventory Asset account.
  • QuickBooks calculates the cost moved to COGS based on your inventory costing method (commonly FIFO or average cost), so the exact dollar amount per unit sold may vary slightly depending on your setup.
  • If you have questions about how your specific products or purchases are configured, reach out to your BlueTrace or QuickBooks support contact — we're happy to walk through it with you.