When using Inventory items, how do you ensure COGS matches purchases?

• A. Track inventory using a single general ledger account and never adjust quantities.
• B. Ensure correct item types, match purchases to Inventory Asset and COGS when sold; perform regular quantity adjustments and reconciliation of stock.
• C. Record purchases only in Accounts Payable and ignore Inventory Asset.
• D. Reconcile stock levels only at year-end without ongoing adjustments.

Answer: (B)

The key idea is how inventory items move costs between the Inventory Asset account and the COGS (cost of goods sold) account. In QuickBooks, an Inventory type item is linked to an Inventory Asset account for on-hand stock and a COGS account for the cost that will be recognized when the item is sold. When you purchase inventory, you increase the Inventory Asset; when you sell the item, the cost is moved to COGS. To keep COGS aligned with purchases, you must use the correct item types and ensure purchases are recorded against the Inventory Asset, with the corresponding cost recognized in COGS at the time of sale. Regular quantity adjustments and stock reconciliations are essential so the quantity on hand matches your physical stock, preventing discrepancies that would throw COGS off. Relying on a single general ledger account or recording purchases without updating inventory, or only reconciling at year-end, can lead to mismatches between what you bought, what you have on hand, and what you’ve expensed as COGS.