Inventory Versus Non-inventory Parts

Question: In QuickBooks, do I set up my items as “non-inventory part” or “inventory part”?

Answer: Most always, ad specialty transactions are of the “non-inventory part” variety. The items ordered are customized to our clients' specifications—drop shipped directly to them, and we, the distributors, do not take physical possession. And in QuickBooks, these transactions are non-inventory parts.

This is an important distinction, because the accounting for non-inventory parts is vastly different from that of inventory parts. The income reporting is the same, but the expense side is not. For non-inventory parts, the cost of the item goes directly into cost of goods sold on your profit and loss statement.

With inventory parts, the expense of the items is listed as Inventory, which is an asset on your balance sheet. Having an inventory item indicates that you have purchased goods that you are waiting to sell, which is not the case with most ad specialty orders.

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