The Cost of Goods Sold account is added to your chart of accounts the first time you add an inventory item. QuickBooks uses this account to track how much you paid for goods and materials that were held in inventory and then sold.
While an item is held in inventory, its value is tracked in the Inventory Asset account, which is also added to your chart of accounts when you create your first inventory item. As soon as that item is sold using an invoice or sales receipt, its value is taken out of the Inventory Asset account and put into the Cost of Goods Sold account.
An account that QuickBooks automatically adds to your chart of accounts the first time you add an inventory item. QuickBooks uses this account to track how much you paid for goods and materials held in inventory that you eventually sold. After you enter a sale, QuickBooks adjusts your costs of goods sold by multiplying the quantity sold times the average cost of each item.
Your chart of accounts lists the type for this account as “Cost of Goods Sold.” You can set up subaccounts to track costs for different types of inventory sold.
Note: When you create your first inventory item, the Inventory Asset account is created.