How to track inventory in Wave

When you spend money to build up a stock of items that you can sell, you have converted cash into an asset known as inventory. To properly assess the state of your business, it is important your accounts show the value of this asset.

Accounting for inventory, and similar assets such as Raw Materials and Work in Progress/Unfinished Goods is a fairly advanced accounting topic. This article will take you through the basics.

Wave does not calculate or track the unit value of inventory for your business - this workaround only works after you've calculated the monetary value of your units.

Create new accounts

To handle basic inventory accounting in Wave, you need two accounts for each inventory item: an inventory asset account, and a cost of goods sold expense account. To create these accounts:

  1. On the left-hand menu, head to Accounting > Chart of Accounts.
  2. Under the Assets account type, scroll down to the Inventory accounts section, then click Add a new account.
  3. Enter the name of this new account.
  4. Click Save to create the new account.
  5. Select the Expenses account type at the top of the page, scroll down to the Cost of Goods Sold accounts section, then click Add a new account.
  6. Enter the name of this new account.
  7. Click Save to create the new account.

Each type of inventory should have its own inventory asset account and cost of goods sold expense account.

Record the purchase of inventory

To help explain what to do when you buy and sell inventory, we'll work through an example:

Let's say you purchased $100.00 of inventory, which, in this example, is under the account Inventory Asset - Muskoka Chair.

If you have imported your bank or credit card transactions, categorize the expense transaction to your asset's inventory account. If you made a bulk purchase for multiple inventory types, you will need to split the transaction.

If you did not connect your bank to Wave, then you can enter the transaction manually on the Transactions page. Click the Add Expense button and enter the details. In the Category section, select your asset's inventory account.

Record the sale of inventory

To continue with the example, let's say you made a sale to a customer for $20.00 worth of Muskoka Chair inventory, and the actual cost of goods sold is $10.00.

To record this transaction you have two options, depending on whether you're recording the sale with an invoice or without an invoice:

  1. Head to Accounting > Transactions
  2. Either locate your bank-imported income transaction or click Add income.
  3. With an invoice - categorize the transaction as Payment received for an invoice in Wave, then select the outstanding invoice.
  4. Without an invoice - categorize the transaction to your income account of choice, for example, Sales.

Each time you record an inventory sale transaction you also have to record a journal transaction. To create this transaction:

  1. Head to Accounting > Transactions.
  2. Click More > Add journal transaction.
  3. Debit your inventory cost of goods sold account to record the actual expense. That is $10 in this example.
  4. Credit your inventory asset account to record the monetary decrease in inventory, which represents your stock level. That is $10 in this example.
  5. Click Save.

Now, your transactions related to this inventory movement will look something like this:

You can check your balance sheet to verify the balance of your accounts.

You can also view your profit & loss statement to see how your business performed after this sale.