Chart of Accounts - Product Business

Product businesses - e-commerce, wholesale, retail, physical goods manufacturers —carry inventory and sell tangible goods.

Gross margin (revenue minus COGS) is the most important profitability metric, getting COGS right is what makes that number trustworthy.

Recommended Chart of Accounts

Assets

Account	Type	Notes
Chequing Account	Bank
Accounts Receivable	AR
Inventory — Finished Goods	Other Current Asset	Products ready to sell. This is the main inventory account for most product businesses.
Inventory — Raw Materials	Other Current Asset	Add if you manufacture or assemble products from components.
Inventory — Packaging Materials	Other Current Asset	Add if packaging is a significant cost tracked separately.
Prepaid Expenses	Other Current Asset
Equipment	Fixed Asset	Manufacturing or warehouse equipment
Less: Accumulated Depreciation	Fixed Asset

Liabilities

Account	Type	Notes
Accounts Payable	AP	Supplier invoices for inventory and supplies
GST/HST Payable	Other Current Liability
PST Payable	Other Current Liability	Add if registered for provincial sales tax
Credit Card	Credit Card

Equity

Account	Type	Notes
Retained Earnings	Retained Earnings
Share Capital	Equity

Revenue

Account	Type	Notes
Product Sales — Retail	Income	Direct-to-consumer sales
Product Sales — Wholesale	Income	Add if you sell to retailers or distributors at different pricing. Keeping retail and wholesale separate lets you see the margin difference.
Shipping Revenue	Income	Shipping fees charged to customers, if separate from product price
Returns and Allowances	Income	A contra-revenue account (negative). Track refunds and returns here to see your net revenue clearly — rather than burying returns in an expense account.

Cost of Goods Sold

Account	Type	Notes
Cost of Goods Sold	COGS	The purchase price (or manufacturing cost) of the goods sold during the period. This is what moves from Inventory to COGS when a sale is made.
Freight In	COGS	Shipping cost to receive inventory from your supplier. This is a product cost, not an overhead expense — it belongs in COGS.
Packaging Materials	COGS	Boxes, labels, bags, tissue — materials that go directly into the product sold. Add as a COGS line if significant; otherwise fold into COGS.
Inventory Write-Offs	COGS	Damaged, expired, or obsolete inventory that can no longer be sold. Tracking separately shows how much inventory loss is occurring.
Duties and Import Fees	COGS	Customs and import costs for goods sourced internationally. A product cost, not overhead.

Expenses (Overhead)

Account	Type	Notes
Shipping — Outbound	Expense	Cost to ship products to customers. Some businesses include this in COGS (as a direct cost of delivering the product); others treat it as an overhead expense. Be consistent.
Warehouse and Storage	Expense	Rent and operating costs for storage space
Payment Processing Fees	Expense	Stripe, Shopify, Square transaction fees
Returns Processing	Expense	Labour and costs associated with processing returns
Platform Fees	Expense	Shopify, Amazon, Etsy, or other marketplace fees
Advertising and Marketing	Expense
Salaries and Wages	Expense
Software and Subscriptions	Expense
Professional Fees	Expense
Insurance	Expense

Notes on Specific Accounts

Inventory accounts

Inventory is an asset, not an expense — you do not expense a product until it is sold. The accounting move: when you buy inventory, it goes to the Inventory asset account. When it sells, the cost moves from Inventory to Cost of Goods Sold. QBO handles this automatically if you use the Products and Services feature with inventory tracking enabled.

Freight In vs. Shipping — Outbound

Freight in (cost to receive inventory) is a product cost — it increases the cost basis of your inventory. Outbound shipping (cost to deliver to customers) is either a COGS item (if you treat delivery as part of the product) or an overhead expense. Pick one approach and be consistent; mixing them distorts your gross margin.

Returns and Allowances as contra-revenue

Recording refunds as a contra-revenue account (negative income) rather than an expense gives you a cleaner view of net revenue and return rate. Your gross revenue stays visible, the returns are visible, and the net is the number that matters.

When to split retail vs. wholesale revenue

From day one if you sell through both channels — the margin difference is significant enough that blending them masks performance. If you only sell one way today, add the second account when you open the second channel.

Duties and Import Fees

Commonly missed as overhead when they are actually a product cost. If you source internationally, duties and import fees should be in COGS — they are part of the landed cost of the inventory.

FAQ

Does QBO track inventory automatically?

Yes, if you set up items as inventory tracked products in QBO. When you record a sale, QBO moves the cost from inventory to COGS automatically. This requires the inventory asset account and COGS account to be set up correctly and linked to your product items. Ask your Mesa CPA bookkeeper to configure this.

What is the difference between perpetual and periodic inventory?

Perpetual inventory (what QBO uses) updates the inventory balance in real time with every sale and purchase. Periodic inventory counts physical stock at intervals and adjusts the books accordingly. Perpetual is more accurate; periodic is simpler for businesses with large numbers of low-value SKUs.

How do I handle inventory I bought but have not sold yet?

It sits on your Balance Sheet as an asset (Inventory — Finished Goods). It does not hit your P&L until it is sold. This is why buying more inventory than you sell does not automatically reduce profit — it just shifts cash into an asset.

Do I need to do physical inventory counts?

Yes — periodically. QBO tracks what should be on hand, but shrinkage (theft, damage, miscounts) means the system number drifts from reality over time. An annual physical count (at minimum) reconciles the two and triggers an inventory write-off adjustment.