QuickBooks Inventory Management: How to Get It All Working

Does QuickBooks Have Inventory Management?

You’ll be relieved to know that if you’re looking into finding a solution that can help you with inventory management as well as keep on top of your finances, QuickBooks Online and QuickBooks Desktop do come with some features to help you with these, but they come with a pretty significant caveat. 

You can use QuickBooks for: 

• Tracking real-time stock levels
• Calculating Cost of Goods Sold using FIFO
• Creating reorder point alerts 

But actually getting access to these functions depends on the QuickBooks version and plan. 

QBO Simple Start and Essentials 

Note: Doesn’t have inventory management, so skip ahead if you’re only interested in that. 

The lowest-priced plan is the Simple Start tier, designed for service-based freelancers and single-business owners who just need a bookkeeping solution that helps them with: 

• Income and expense tracking
• Unlimited invoicing
• Bank syncing
• GST/VAT reporting

And Essentials offers all the same, but is slightly more powerful in terms of financial management, giving you: 

• Bill management
• Multi-currency support
• Employee time tracking  

But the big enchilada, does it come with inventory management capabilities? No. So, moving on. 

QuickBooks Online Plus 

QBO Plus starts to introduce inventory management functionality into the software, allowing you to calculate COGS and convert your purchase orders into bills when you receive a shipment. 

You can also use this version of QBO to create safety stock by setting low-stock threshold triggers to make sure you always have enough inventory on hand to fulfill orders. However, Plus is better suited for dropshippers or for businesses operating out of one location, since it is unable to help you manage inventory at multiple locations (but the next plan can). 

QuickBooks Online Advanced 

QBO Advanced is when the software starts to become useful for the bigger operations, helping you manage your business at multiple locations, with: 

• Multi-location inventory tracking
• An additional costing method — weighted average 
• Reporting with custom dashboards, workflow automation, and unlimited class and location tracking

For mid-sized operations with more complexity to manage, this is the tier that starts to feel purpose-built rather than bolted-on.

However, what about manufacturers who want to manage their production runs? For these businesses, you will need to turn to a different version of QuickBooks entirely. 

QuickBooks Desktop Enterprise

For manufacturers or businesses that operate in a heavily regulated industry like food and beverage, QuickBooks Desktop is going to be what you need, as it gives businesses the tools to manage: 

• Serial and lot number tracking
• Barcode scanning
• Multi-location management

If you’re a company handling a high volume of sales and need to take control of complex operational processes, Desktop is the ideal (but pricier) solution.  

And there you have it, QuickBooks Online and Desktop in all their glory. If you decide that these plans have what it takes to help you with QuickBooks inventory management, then let’s look into getting you set up.  

How to Set Up QuickBooks Inventory Management 

Visual input: Someone using QuickBooks or stock image of QuickBooks.  

First things first, for QuickBooks inventory management to even be an option, you’re going to need to select the plan that comes with that functionality, so either Plus or Advanced. 

Once you’ve picked the best plan for your business, you can follow these steps to start tracking your inventory with QBO. 

Turn On Inventory Settings

1. Click the Settings gear icon and select Account and settings.
2. Select the Sales tab.
3. Click Edit in the Products and services section.
4. Turn on Show Product/Service column on sales forms.
5. Turn on Track quantity and price/rate.
6. Turn on Track inventory quantity on hand.
7. Click Save, then Done.

If you’re selling taxable products, ideally you should set this up before turning on inventory tracking, as the taxed items will be categorized later based on your input. 

But, with that said and your inventory tracking enabled, we can now start adding products to QBO. 

Add Your Inventory Items

1. Enter a product Name and, optionally, a SKU and photo.
2. Enter the Initial quantity on hand — make sure that the quantity you put into the QuickBooks inventory management system represents what you actually have on hand, as correcting this later will distort your accounting. If you’re due to receive a shipment, enter 0 and add it to QBO once it arrives. 
3. Enter the As of date, which will represent the date you performed your physical inventory count. With that entered, QuickBooks won't factor in any sales or purchases before this date.
4. If you would like to receive reorder point alerts from your QuickBooks inventory management system, then you can also set a Reorder point.
5. Choose Inventory Asset as the inventory account, as this tracks the dollar value of everything on hand.
6. Enter a customer-facing description, the Sales price/rate, and an Income account to route revenue to the proper cost centers. 
7. Enter a separate description for bills and purchase orders, the Cost you typically pay, and set the expense account to Cost of Goods Sold. Add a preferred vendor if you have one.
8. Click Save and close.

As you’ve probably gathered, creating a product manually takes a little bit of effort. So, if you need to add multiple products to finish setting up QuickBooks inventory management, you can also import a spreadsheet to add all your product information in one go. 

How QuickBooks Values Inventory: FIFO vs. Weighted Average Cost

As we already mentioned, some versions of QBO give you the option to value your stock with one of two inventory valuation methods. 

But, if you’re looking into potentially getting started with Desktop for your QuickBooks inventory management, then it’s worth mentioning that both systems handle valuations differently, using different: 

• Default methods
• Available options
• Steps to change them 

This essentially makes Online and Desktop two different products, so we will go through each version separately.

Costing Methods in QuickBooks Online: FIFO and Weighted Average

Let’s imagine you’re using QBO Advanced — since that’s the plan that gives you the ability to use one of two options. 

When using FIFO in QuickBooks inventory management, every purchase order is treated as its own batch. So, when a sale is recorded, QBO commits the oldest batch to that sales order first, adjusting both the inventory asset value and COGS to match. 

Here’s an example to make it easier to understand. 

Let’s imagine you resell chocolate bars. You buy 20 chocolate bars one month, each costing $6, but the next month you buy 30 bars, and a cocoa shortage means the wholesaler has to raise the price to $7. Since you haven’t sold any chocolate yet, your business would be simply holding $330 in inventory assets across two cost tiers. 

Then, let's imagine a customer with an insatiable sweet tooth buys 15 chocolate bars from you. 

QuickBooks will commit the inventory that was purchased first, so it will pull the $6 bars from stock, reducing your asset value by $90 and increasing COGS by $90. However, those 15 chocolate bars weren’t enough for our loyal customer, so they ordered another 20. QuickBooks will first use up the $6 bars before using the $7 batch, blending the value with those two batches. 

Even though the value will be blended, QuickBooks inventory management doesn’t display it that way in the system. 

For our chocolate-loving friend's second order, this will appear in QBO as two separate line items for each rate. 

The alternative available on QuickBooks Online Advanced is weighted average costing, which recalculates a single average cost per unit every time new inventory is purchased, rather than tracking purchase batches separately. 

So, moving away from chocolate and to the exciting world of reselling smart devices, if a business starts with 10 units at $200 each ($2,000 total) and then buys 15 more at $210 each ($3,150), the new average becomes $5,150 divided by 25 units, or $206 per unit (and every unit sold going forward is valued at that rate until the next purchase changes it again). 

This approach makes the most sense for businesses selling largely interchangeable goods, dealing with frequent price fluctuations, or running a perpetual inventory system where the exact purchase order of individual units doesn't matter operationally.

Costing Methods in QuickBooks Desktop Enterprise: Average Cost and FIFO

QuickBooks Enterprise inventory management works from the opposite default. 

Average Cost is the standard method most users are already on, whether or not they've chosen it deliberately. It functions the same way as QuickBooks Online's weighted average method — a single blended cost per unit, recalculated with every purchase — but here it's the built-in starting point rather than an upgrade option.

FIFO is available as an alternative, though it's gated behind Advanced Inventory, which only ships with the Platinum and Diamond editions of Enterprise. 

The mechanics work identically to FIFO on QuickBooks Online. 

Using similarly round numbers (100 units bought at $10 each, followed by 100 more at $15 each), Average Cost would blend the two into $12.50 per unit, while FIFO would value any of the first 100 units sold at the original $10 cost, only moving into the $15 tier once that batch is exhausted.

Switching from Average Cost to FIFO in Desktop Enterprise involves a few configuration steps:

1. Go to Edit, then Preferences.
2. Select Items & Inventory from the left menu, then open the Company Preferences tab, and confirm inventory and purchase orders are active.
3. Click Advanced Inventory Settings, then open the FIFO tab.
4. Select Use FIFO starting on and enter a start date — choosing the first day of a new reporting period keeps the transition cleaner.
5. Click OK, then OK again to close Preferences.

Once FIFO is turned on, QuickBooks recalculates all inventory transactions from that start date forward, and the change carries through to the: 

• Inventory Valuation
• Balance Sheet
• Profit and Loss reports

Switching back to Average Cost later is as simple as unchecking Use FIFO starting on in the same settings screen. 

Because the costing method affects taxes as well as reported profit, it's worth confirming the switch with an accountant and testing it in a backup company file before applying it to live data.

Where QuickBooks Inventory Management Falls Short

QuickBooks is built primarily for accounting, solid for a simple buy-store-sell workflow, but limited the moment a business needs deeper operational control. 

For manufacturers in particular, several of these gaps are present regardless of which version you use, while others are really a matter of plan tier, since Desktop Enterprise's Advanced Inventory module closes some of the gaps that Online users hit. 

The distinction matters when deciding whether an upgrade solves the problem or whether it calls for a dedicated inventory system entirely.

Limited Multi-Location Tracking

Multi-location visibility is uneven across the QuickBooks lineup. QuickBooks Online Advanced supports it, but anything below that tier has no real workflow for tracking stock across separate warehouses, retail locations, or 3PL providers — transfers get logged manually, and real-time stock levels by location simply aren't visible. 

Desktop Enterprise closes part of this gap with its Advanced Inventory module, but even there, the automation doesn't match what a dedicated multi-location system provides. The practical risk is the same across tiers — without accurate location-level visibility, businesses end up stocking out in one location while overordering in another.

No Manufacturing or Bill of Materials Support

QuickBooks' inventory model assumes a business is buying and reselling finished goods, not converting raw materials into new products. 

That assumption breaks down fast for manufacturers. There's no multi-level bill of materials, no work-in-progress tracking, and no way to model how raw materials convert into finished goods through a production process. 

Basic item assembly exists, but it stops well short of handling matrix items (like apparel tracked by size and color) or dynamic bundle adjustments. Any business whose core operation involves producing goods rather than just moving them will quickly outgrow this.

No Native Barcode Scanning

Barcode scanning isn't built into QuickBooks Online at all. 

There's no: 

• Barcode generation
• Mobile scanning
• Real-time updates from handheld devices for picking, packing, or receiving 

That functionality is available only on Desktop Enterprise with Advanced Inventory enabled.

Elsewhere, warehouse staff are left entering data manually, which slows fulfillment and introduces the kind of human error that barcode workflows are meant to prevent.

Restricted Serial, Lot, and Expiry Tracking

For traceability, the ability to track serial numbers, lot numbers, or expiration dates is only available on the Desktop Enterprise Advanced Inventory tier.

For businesses in food and beverage, medical products, or electronics, this is a non-negotiable for enabling product recalls and compliance reporting. Without it, tracing a defective or recalled item back through its lifecycle becomes a manual, error-prone process.

Weak E-Commerce Integrations

Native syncing between QuickBooks and platforms like Shopify, Amazon, or WooCommerce tends to be slow or requires paying for third-party connectors to work well. 

Because inventory counts don't update instantly across every sales channel, businesses selling in multiple places run a real risk of overselling — a customer buys something on one channel that's already sold out on another, and QuickBooks hasn't caught up yet.

No Demand Forecasting

QuickBooks reports on what has already happened since it doesn't predict what's coming next.

There's no predictive analytics, no safety stock optimization based on demand variability, and no dynamic reorder points that adjust for seasonality or changing lead times — reorder levels stay fixed until someone manually updates them. 

Businesses that want forecasting have to build it themselves in spreadsheets or bring in a separate forecasting tool.

Shallow Reporting Depth

Inventory reporting in QuickBooks stays at the snapshot level — what's on hand, what's on order, basic COGS. 

It doesn't offer trend analysis, sales velocity segmentation, or ABC classification, which businesses typically need to make strategic purchasing and stocking decisions. Getting that level of insight usually means exporting data out to Excel or another BI tool rather than working from QuickBooks' native reports.

For these reasons, manufacturers and businesses that manage massively complex operations and workflows tend to use QuickBooks for their bookkeeping and financials, while integrating it with an ERP solution that handles the heavy lifting required for production and everything in between. 

That’s why many of these businesses struggling with QuickBooks inventory management turn to Digit. 

Connecting Digit with QuickBooks

Digit is built to run the operational side of the business (inventory, production, purchasing, and order fulfillment), while QuickBooks remains the system of record for accounting. 

By connecting the tools, you only need to enter your data once. Sales and purchase activity recorded in Digit flows through to QuickBooks as invoices and bills, so financial reports stay accurate without manual re-entry or reconciliation between two disconnected systems. The integration works with either QuickBooks Online or QuickBooks Desktop, and the setup differs slightly between the two.

So, whenever a Sales Order is created in Digit, it becomes an Invoice in QuickBooks, and a Purchase Order becomes a Bill. The general best practice is to treat QuickBooks as the financial ledger and let Digit handle the day-to-day operational work that feeds into it.

Here’s how to get started:

Connecting QuickBooks Online

1. Go to Settings, then Integrations.
2. Find QuickBooks Online and select Get started.
3. Select Connect to QuickBooks and log in to authorize the connection.
4. Map your accounts — set which account Sales Orders should post to as Invoices, and which account Purchase Orders should post to as Bills.
5. Choose which existing data to import: Customers, Vendors, and Items.
6. Select Start import, then Close once it finishes.

Once connected, Customers, Vendors, and Items stay synced automatically, and Digit pushes new Invoices and Bills to QuickBooks Online as orders are sent — with the full sync running in the background every few minutes, so both systems stay current without manual intervention.

Connecting QuickBooks Desktop

1. Go to Settings, then Integrations.
2. Select Connect to QuickBooks Desktop.
3. Enter the file path to your QuickBooks company file.
4. Download and open the QuickBooks Web Connector file.
5. Authorize the connection and enter the password when prompted.
6. Run the first sync, then select the correct Cost of Goods Sold and Sales of Product Income accounts.

QuickBooks Desktop doesn't sync continuously in the background. Instead, data moves between the two systems whenever a sync is run, either manually or on a schedule you set in the Web Connector. Customers, Vendors, and Items are imported during setup, and ongoing sales, purchases, and cost updates carry over as Invoices and Bills in each subsequent sync.

Want to see for yourself? Book a call with one of our QuickBooks inventory management experts, and they’d be more than happy to take you on a tour of Digit and help you get your operations under control.