Bookkeeping and financial strategy for small businesses in Beaver Dam and throughout Wisconsin.

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How should a small retail shop track inventory in QuickBooks?

You need QuickBooks Online Plus or Advanced. The Simple Start and Essentials plans don’t include inventory tracking. Once you’re on Plus, you can turn on inventory tracking in settings and start creating inventory items with quantities and costs. QuickBooks uses the average cost method, meaning it calculates your cost of goods sold based on the weighted average of what you paid for each item over time. You don’t get to choose FIFO or LIFO, but average cost works fine for most small shops.

The most important decision you’ll make is how your point-of-sale system connects to QuickBooks. If you’re using Square, Shopify, or Lightspeed, there are integrations that sync sales and inventory data directly into QBO. This is worth setting up correctly from the start because the alternative is manually entering every sale and adjusting inventory by hand. That leads to errors, missed transactions, and inventory counts that don’t match reality. A good integration means that when you sell a candle at the register, QuickBooks automatically reduces your candle inventory by one and records the revenue and cost of goods sold.

Set up your items at a level of detail that’s useful without being overwhelming. A boutique with 200 SKUs can reasonably track each product. A shop with 3,000 items might need to group similar products into categories. The goal is to know what’s selling, what’s sitting, and what your actual margins look like by product or product group. Tracking every color variation of every item sounds thorough but creates a maintenance burden that most small shop owners abandon within a few months.

Run physical cycle counts at least once a month. Pick a section of your store each week or count everything monthly. Compare what you physically count to what QuickBooks says you should have. The difference is shrinkage, whether from theft, damage, miscounts at receiving, or transactions that didn’t get recorded. You can’t fix what you don’t measure, and inventory shrinkage is one of the biggest silent profit killers in retail.

When you receive new inventory, enter it into QuickBooks as soon as it arrives. Record the quantity and what you paid. This keeps your average cost accurate and your on-hand quantities current. Letting purchase orders and receiving pile up creates a backlog that makes your inventory numbers unreliable, which defeats the purpose of tracking in the first place.

Watch your inventory valuation report in QuickBooks monthly. It shows you the total value of what you’re holding. If that number keeps climbing while sales stay flat, you’re buying more than you’re selling. That’s cash sitting on shelves instead of in your bank account. Good inventory accounting gives you the data to make smarter purchasing decisions and avoid overstock situations.

If you’re just getting started with inventory tracking or your current system feels unreliable, working with Rock Steady Bookkeeping can help you get QuickBooks configured properly and connected to your POS so you’re not fighting your own numbers every month. Getting the foundation right saves hours of frustration down the road.

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More Questions

How do I calculate gross profit margin on a janitorial contract?

Subtract your direct costs (labor, supplies, travel, and equipment depreciation) from the contract revenue, then divide by revenue. Most janitorial operators target 30-40% gross margin to cover overhead and leave room for profit.

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How do small retailers handle returns and refunds in bookkeeping?

Returns reverse the original sale. Revenue and sales tax get reduced, and inventory increases back if the item is resellable. Using a contra-revenue account to track returns separately gives you visibility into return patterns.

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Do restaurants need accrual accounting or is cash okay?

Cash basis is legal for most restaurants, but accrual accounting gives you a much clearer picture of monthly profitability. Many well-run restaurants use accrual internally for decision-making even when they file taxes on a cash basis.

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Can law firms deduct credit card processing fees from client trust funds?

No. Credit card processing fees are a firm expense and must be paid from the operating account. Deducting fees from IOLTA or any client trust account is a trust accounting violation.

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Do I need to issue 1099s to cleaning subcontractors?

Yes, if you paid a subcontractor $600 or more during the year via check, cash, or ACH and they aren't incorporated. Collect a W-9 from every subcontractor before you pay them the first time.

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What cleaning supplies should be inventoried vs expensed?

Almost all cleaning supplies should be expensed when you buy them. They're consumable, relatively inexpensive, and used quickly. The only exception is a large bulk purchase near year-end that represents a material amount of product you'll use in the following year.

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Small business bookkeeping firm based in Beaver Dam, Wisconsin. Bookkeeping, financial strategy, and fractional CFO services built around helping owners understand their numbers and plan ahead. Founded by Laura Prater, a QuickBooks Certified ProAdvisor with over a decade of accounting experience.

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