I have had a few clients make the same mistake on creating inventory items, so I thought I would share a QuickBooks inventory set-up secret with you.

When you set up a new inventory item (List – Item List. Click the Item button and click on New on the menu. Choose Inventory Part from the drop-down menu), do not fill in the bottom part of the screen. The bottom part is the area that says Inventory Information and there are fields that you can fill in information such as Reorder Point, On Hand, and Total Value.

Here’s what happens when you fill in that area: the computer creates a journal entry, increasing your asset inventory account and increasing an account called Opening Balance Equity. So why is this bad? Because when you enter your credit card charge or your check paying for the inventory item, you increase the inventory quantity again, thus doubling your inventory count.

For example, let’s say you create an inventory item called Widgets. In the bottom area you enter in 7 in the On Hand field and $500 in the Total Value field. The computer program now shows that you have 7 widgets worth $500 in your inventory. Later, you enter in a check that you pay to ABC company for the 7 widgets. You choose Widgets from the item tab, enter in 7 as the quantity, and $500 as the value. Now the computer program shows that you have 14 widgets worth $1,000 in inventory which is incorrect. Therefore, do not enter in any information on the bottom portion of the new inventory item creation screen or you double your inventory.