The short answer: a small manufacturer can run on QuickBooks Online if raw materials and finished goods are both set up as inventory items, shop consumables as non-inventory, and production is recorded per batch so cost of goods sold lands in the month you sell, not the month you buy. Inventory needs Plus or Advanced. True assemblies with a bill of materials and manufacturing orders exist in Intuit’s cloud line today, but Intuit’s own help article says those manufacturing features are currently in Intuit Enterprise Suite, so most Plus files still need a batch workaround. This page covers the item setup, the assembly question, COGS timing, the chart of accounts, and the three signs you should have started on something bigger.
Intuit’s inventory setup article (updated 17 June 2026) is plain about it: inventory features are available on QuickBooks Online Plus and Advanced. Simple Start and Essentials users can buy an inventory add-on or upgrade. Before you add a single item, turn on Track quantity and price/rate and Track inventory quantity on hand under Account and settings, Sales, Products and services. Without the second switch, nothing you set up below will hold a quantity.
Most setup problems in a maker’s file come from one decision: calling raw materials “non-inventory” because it is quicker. Here is how each item type fits a shop with 1–10 people.
| Item type | Use it for | What QuickBooks tracks |
|---|---|---|
| Inventory | Raw materials you stock and count (sheet stock, fabric, resin, components) and the finished goods you sell | Quantity on hand, cost, reorder point. Cost moves to COGS only when the item is sold or adjusted out. |
| Non-inventory | Consumables you buy but do not count: glue, fasteners, sandpaper, packaging you do not track | No quantity. The cost goes to whatever account you choose on the purchase, immediately. |
| Service | Labour you bill, installation, outside processing you resell | No quantity. Income on the sale, expense on the purchase. |
| Bundle | Kits you sell as one line: a product plus its mounting hardware | Nothing of its own. Each component’s quantity drops when the bundle is sold; the bundle has no stock level or cost. |
| Inventory (assembly) | Finished goods built from a bill of materials, where your plan offers it | A recipe of components, plus manufacturing orders that post the build (see below). |
The bundle row is where people get caught. A bundle saves typing on the invoice; it does not build anything. If you make a product from parts, a bundle will reduce the parts when you sell it, but you never hold a finished-goods quantity, so you cannot see what is sitting on the shelf ready to ship.
Intuit’s “Get started with manufacturing orders and assemblies” article, updated 3 August 2026, describes a real production workflow in the cloud product: create an Inventory (assembly) item, save its bill of materials (components, raw materials and services such as labour, per one unit), then open a manufacturing order for a quantity to build. The order sits as Planned, can be marked In progress, and has a shortage column that counts what other open manufacturing and sales orders need from the same components. Nothing posts to the books until you review the build, enter the final quantity and actual service costs, and complete it; QuickBooks then creates a Build assembly transaction behind the order.
Three limits in the same article matter for planning. It states that manufacturing features are currently available in Intuit Enterprise Suite, and that on a downgrade assembly items revert to regular inventory items and bills of materials become view-only. Edits to a bill of materials apply only to manufacturing orders created after the edit. And multi-level bills of materials with sub-assemblies are not supported in Intuit Enterprise Suite. So check your own Products and services, New menu for “Inventory (assembly)” before designing the file around it.
On Plus without assemblies, the workable pattern is a batch entry, not a daily one. For each production run: adjust the component inventory items down by what the batch consumed, and adjust the finished-goods item up by what it produced, both through one account you create called Production clearing. Then look at that account. If it does not come back to zero, the value QuickBooks placed on the finished goods differs from the cost of the components that went in, and the difference is your correction for the month. This is a workaround, not an Intuit feature, and it is only as good as the discipline behind it; one batch entry a week beats thirty unreconciled ones at month-end.
QuickBooks Online moves an inventory item’s cost to cost of goods sold when the item is sold. A non-inventory item’s cost goes to its account the day you buy it. That one difference explains most “our March was terrible and April was amazing” conversations.
Example math, not a benchmark: you buy $6,000 of materials in March, build in March, and ship and invoice $15,000 in April. With materials as non-inventory, March shows $6,000 of cost and no sales, April shows $15,000 of sales and no material cost. With materials as inventory and a batch entry, March shows neither, and April shows $15,000 of sales against $6,000 of cost. Same business, same cash; only the second version tells you what a product earns.
Labour follows payroll, not the product. Unless a manufacturing order carries labour as a service line, production wages hit the books when paid. Give them their own line, COGS – direct labour, so gross margin includes them and the owner can see it. How year-end inventory is valued for tax, and whether any labour or overhead belongs in it, is a question for your CPA, not a QuickBooks setting.
Keep it short and make each line answer a question the owner actually asks.
| Account | Type | Why it is separate |
|---|---|---|
| Inventory – raw materials | Current asset | Shows cash sitting in stock not yet built |
| Inventory – finished goods | Current asset | Shows product ready to ship; assign each item to the right one |
| COGS – materials | Cost of goods sold | Posted automatically when inventory items sell |
| COGS – direct labour | Cost of goods sold | Production wages, so gross margin is real |
| COGS – freight in | Cost of goods sold | Inbound freight you do not load onto item cost |
| COGS – inventory adjustments | Cost of goods sold | Counts, scrap and shrink, kept visible rather than buried |
| Production clearing | Other current asset | The batch workaround above; must net to zero |
| Shop supplies | Expense | Non-inventory consumables |
Freight deserves a decision on day one. Without a landed-cost feature you either add freight to the item lines on the vendor bill by hand, which raises unit cost, or post it to COGS – freight in. Both are defensible; switching between them month to month is not.
1. Your products are built from sub-assemblies. A frame that goes into a cabinet that goes into a kit is a multi-level bill of materials. Intuit’s article says Intuit Enterprise Suite does not support that today; QuickBooks Desktop Enterprise does, and Intuit’s list-limits article (updated 3 August 2026) allows 500 components per assembly in Enterprise against 100 in Pro and Premier.
2. You stock in more than one place, pay freight you must allocate, or track lots or serials. In QuickBooks Enterprise, stock by site, landed cost and lot or serial tracking are Advanced Inventory features, which Intuit’s Advanced Inventory page (read 16 September 2026) lists for Platinum and Diamond only. Our NetSuite vs QuickBooks Enterprise inventory comparison walks the item types line by line.
3. You are adding people faster than seats. QuickBooks Online plans cap users at 1, 3, 5 and 25. A shop with a floor lead, a buyer, a bookkeeper and an owner is already at the Plus cap of 5.
None of these is a reason to panic about a file that works. They are reasons to decide now, while there are twelve months of history to move instead of five years.
Yes, on Plus and Advanced (or with the inventory add-on). Set both up as inventory items, ideally assigned to separate inventory asset accounts, so you can see cash in unbuilt stock separately from product ready to ship.
Intuit’s cloud line has inventory assembly items with a bill of materials and manufacturing orders. Intuit’s help article, updated 3 August 2026, says manufacturing features are currently available in Intuit Enterprise Suite and that multi-level bills with sub-assemblies are not supported there. Check your own plan’s New item menu for Inventory (assembly).
No. A bundle groups items on a sales form and reduces each component when sold. It has no quantity or cost of its own, so you cannot hold a stock of finished bundles. An assembly is built ahead of the sale and carries its own quantity.
When products are built from sub-assemblies, when you stock at more than one site or need landed cost or lot and serial tracking, or when you need more users than QuickBooks Online allows. Enterprise’s Advanced Inventory is on the Platinum and Diamond subscriptions only.
Want the file set up or rebuilt rather than described? Start with QuickBooks Online services, or see QuickBooks Enterprise if the three signs above already apply. Moving an existing Desktop file with assemblies? QuickBooks Desktop to Online covers what the conversion keeps. If the current books are a mess, the free QuickBooks File Analyzer takes 60 seconds.
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Founder of Numerawise Solutions, established MMXXIV in Atlanta. Intuit ProAdvisor Gold tier. Former Intuit Technical Support engineer. Has personally led two hundred accounting software conversions for US small businesses since founding the practice. Reachable directly at [email protected].