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.