Playbook Lesson #15: Inventory Tracking : Know What You Have and What It's Worth

Inventory is more than a shelf, storage bin, or back-room count. It is cash your business has already spent: and it can have a meaningful impact on your bottom line.

That is why accurate Inventory Tracking matters. When you know exactly what you have, what is selling, and what each item is worth, you can make better purchasing decisions, protect your cash flow, and avoid unpleasant surprises.

At Ledgers By Liisa LLC, we believe good bookkeeping should feel Clear. Creative. Calm. Let’s look at a few practical ways to bring more clarity to your inventory.

Inventory Is Part of Your Business’s Financial Picture

Products held for sale are generally considered an asset until they are sold. Once an item sells, its cost moves from inventory into Cost of Goods Sold (COGS): the direct cost associated with producing or purchasing the item.

This distinction is important. If inventory purchases are recorded as expenses too early, your reports may not show an accurate picture of your business. Your Profit and Loss (P&L) statement could look less profitable than it really is, while your balance sheet may not reflect the value of the products you still have on hand.

Accurate bookkeeping helps connect the physical items in your business to the financial records in your accounting system.

Start with an Organized Inventory List

You do not need a complicated system to begin. Start with a clean list of the products you carry and include details such as:

• Product name and description

• Stock-keeping unit (SKU), if applicable

• Quantity currently on hand

• Purchase cost and selling price

• Vendor or supplier

• Storage location

• Reorder point

A reorder point is the inventory level at which you need to place another order. Setting one can help you avoid both extremes: running out of a popular product or tying up too much cash in items that are sitting still.

Clear labels and consistent product names also make counting easier. “Blue candle, 8-ounce” is more useful than “miscellaneous product” when you are reviewing sales and margins.

Use QuickBooks Online to Connect Inventory and Bookkeeping

If your business uses QuickBooks Online (QBO), inventory items can connect your sales, purchases, quantities, and financial reports in one place. When inventory is set up correctly, recording a purchase can increase the quantity and value of your inventory. Recording a sale can reduce inventory and recognize the related COGS.

QuickBooks Online uses the first in, first out (FIFO) method for inventory valuation. In simple terms, it assumes the oldest purchased items are sold first. Intuit explains more about this process in its official inventory costing guidance.

The key is consistency. Inventory purchases should be entered as inventory items when appropriate: not simply posted to a general expense account. Sales, returns, damages, and adjustments should also be recorded so your quantities remain dependable.

If you are unsure whether your QBO setup is working as it should, our QuickBooks Online coaching can provide personalized guidance for your specific file and workflow.

Count Regularly and Reconcile the Difference

Accounting software cannot see what is physically on your shelves. Regular counts are still essential.

You might count your highest-value or fastest-selling products weekly, review other items monthly, and complete a broader count quarterly or annually. Compare the physical count with your QBO inventory reports. If the numbers do not match, investigate before making an adjustment.

Differences may come from damaged products, customer returns, missing items, receiving errors, or sales that were not entered correctly. Recording the reason for each adjustment creates a clearer record and can help you spot patterns over time.

What Inventory Tracking Can Tell You

Once your inventory records are accurate, they become a decision-making tool. You can identify:

• Best-selling products that need frequent reordering

• Slow-moving items that may need a promotion

• Products with shrinking profit margins

• Cash tied up in excess inventory

• Seasonal trends that can improve future planning

Inventory Tracking is not only about counting. It is about understanding what your products are telling you.

The Tip Jar: Make Inventory Part of Your Monthly Routine

The Tip Jar: Choose one day each month to review your inventory list, compare it with your physical count, and look at your best- and slowest-selling items. A small, consistent check-in can prevent a large cleanup later.

You can find more simple financial tips in Liisa’s Tip Jar, where small steps support stronger financial health.

Keep Two Eyes on What You Have and What It’s Worth

Accurate inventory records support accurate reports, healthier cash flow, and more confident decisions. Whether you manage a few products or several hundred, the right bookkeeping process can help you stay organized without adding unnecessary stress.

For ongoing support, explore our monthly bookkeeping services. With Full Service Bookkeeping from Ledgers By Liisa LLC, you can focus on serving your customers while we focus on Keeping Two Eyes on Your Books.

Visit www.ledgersbyliisa.com to learn more.