Hello everyone,

How should an item from stock that will be used for display in the showroom be entered in the accounting system? The item is not intended to be sold again. Under which account should this transaction appear? A friend suggested creating an invoice for that item with a price value of zero, assigned to a customer named “showroom.” Additionally, we need to track the total value of all displayed items used in the showroom over a one-year period. For context, we are using QuickBooks Enterprise.

Understanding the Accounting Treatment for Showroom Display Items

When an item is taken from inventory for display purposes and will not be sold, it is no longer an asset held for sale. Instead, it becomes a fixed asset or an expense, depending on the expected useful life and company policy. In accounting, such transfers are typically recorded as a reclassification from inventory to a non-inventory account.

Suggested Account Mapping

Common practice is to move the item’s cost from the inventory asset account to either:

  • Fixed Assets – Display Fixtures (if the item will be used for more than one year and has a material value), or
  • Cost of Goods Sold – Display Expense (if the item is considered a period expense, especially if its value is immaterial or it will be discarded after a short period).

Given that you need to track the total value of displayed items for one year, treating them as a separate expense account (e.g., “Showroom Display Expense”) may simplify annual reporting. However, if the items have a longer useful life, capitalizing them as fixed assets and depreciating over time is more accurate.

Evaluating the Friend’s Suggestion: Zero-Value Invoice to “Showroom” Customer

Creating a zero-value invoice to a customer named “showroom” is not a standard accounting practice. In QuickBooks Enterprise, an invoice typically records a sale to a customer. A zero-value invoice would not properly transfer the cost out of inventory, nor would it reflect the correct account. It may also distort sales reports and customer balances. Instead, you should use a credit memo or inventory adjustment to remove the item from stock and charge the appropriate expense or asset account.

Recommended Steps in QuickBooks Enterprise

  1. Create an inventory adjustment (via Company → Adjust Quantity/Value on Hand) to decrease the quantity of the item from stock, and in the adjustment account, select the appropriate expense or asset account (e.g., “Showroom Display Expense” or “Fixed Assets”).
  2. If you need to track the item’s identity and value for internal purposes, you can create a non-inventory item or a fixed asset item and record the transfer using a journal entry: debit the display expense/asset account and credit the inventory asset account.
  3. For annual tracking, you can set up a class or a customer job named “Showroom” and assign the adjustment or journal entry to that class, allowing you to run a Profit & Loss by Class report to see the total value for the year.

Tracking the Total Annual Value of Displayed Items

To track the total value of all displayed items used in the showroom for one year, you have several options:

  • Use a dedicated expense account (e.g., “Showroom Display Expense”) and run a Profit & Loss report for that account for the fiscal year.
  • Use a class (e.g., “Showroom”) and assign all related transactions to that class, then run a Profit & Loss by Class report.
  • If you prefer to keep items as assets, you can track them in a fixed asset register and calculate depreciation, but for a one-year display period, expensing is simpler.

Remember that the method you choose should align with your company’s accounting policies and tax requirements. Consult with your accountant to ensure compliance.

In summary, avoid the zero-value invoice approach. Instead, use inventory adjustments or journal entries to reclassify the item from stock to an appropriate expense or asset account. For annual tracking, leverage QuickBooks’ class or account features to generate accurate reports.