QuickBooks inventory costing: the setting you cannot undo

Does QuickBooks use FIFO or average cost?

QuickBooks Online uses FIFO unless you pick moving average cost before your first inventory item. Desktop uses average cost unless you have Advanced Inventory and turn FIFO on. From Intuit’s help pages, checked October 31, 2026:

The method changes your reported profit. Knowing which one your file is on, and whether it’s the one you want, is worth ten minutes.

What is the difference between FIFO and average cost?

When you buy the same product at different prices, the software has to decide which cost to record when you sell one. FIFO records the oldest cost first. Moving average cost, which Intuit says is also called weighted average, blends every unit in stock into one average that updates after each purchase.

Intuit’s own FIFO example buys 20 widgets at $6, then 30 at $7, for $330 of stock, and sells 15. On those purchases FIFO reports $9 more gross profit than moving average. We added a $10 selling price to show the profit line.

The $330 is the same either way. The method decides how much of it lands in cost of goods sold now and how much stays on the balance sheet as inventory. While prices rise, FIFO shows more profit now and moving average shows less. The gap only closes when you sell through the stock.

How do you choose a costing method in QuickBooks Online?

You choose once, in account settings, before creating any inventory item. If you create an inventory item first, Intuit says QuickBooks Online defaults to FIFO and the option to choose won’t appear in your settings. So the choice is made the moment someone adds the first inventory item, which is worth knowing before anyone does.

Intuit’s January 2026 update brought moving average cost, with its other inventory updates, to QuickBooks Online Plus, Advanced and Intuit Enterprise Suite. Simple Start and Essentials get them with the $40 a month inventory add-on.

If you’re on Desktop and weighing a move, start with whether Desktop is being discontinued and what that means for your edition.

Can you change your costing method in QuickBooks later?

Not in QuickBooks Online. Intuit’s guidance is to choose your costing method carefully because it can’t be changed later. The choice you made on day one, on purpose or by default, is the one you keep in that company file.

Desktop Enterprise with Advanced Inventory works the other way. You pick a date in the FIFO setting, and Intuit says QuickBooks recalculates all inventory transactions from that date. Your inventory valuation, balance sheet and cost of goods sold change with it. Clearing the date puts you back on average cost.

How does the costing method change your profit and taxes?

It matters most when your costs move a lot, which is when margins are tight and you most need accurate numbers. In any period where prices rose or fell, it changes your reported profit and the value of the inventory on your balance sheet.

It also reaches your tax return. IRS Publication 334 has you subtract cost of goods sold from net receipts to get gross profit. The same publication says that if you want to change your method of accounting for inventory, you file Form 3115. Bring your accountant in before you change anything.

For a business that holds little stock, none of this is worth losing sleep over. For one that carries real inventory through rising costs, it changes the profit you report every month.

Costing is one of a few inventory questions that trip up growing businesses. Lot numbers, locations, and assemblies are the others.

I picked the wrong costing method. What now?

In QuickBooks Online you can’t switch the method inside the company you have. Intuit’s US help says to choose carefully because the method “can’t be changed later,” and the choice only appears in a company with no inventory items yet. Its help describes no way to switch once an item exists (Intuit, updated August 14, 2026, checked October 31, 2026).

So the realistic paths are short. You keep the method you have and read your margins knowing how it works. Or you talk with your accountant about a new company file, where the choice still shows. That’s a new subscription and a fresh start for the books. On Desktop Enterprise with Advanced Inventory the answer differs: Intuit says you can turn FIFO on from a start date, and QuickBooks recalculates every inventory transaction from that date.

Before you change anything, check your file. Intuit says the choice lives in your account settings, and if it isn’t there, your file is on FIFO.

A change can also reach your taxes, which is the Form 3115 point above. Ask your accountant whether it applies before you switch methods, in QuickBooks or anywhere else.

Your costing method should be a decision you made for a reason, not a default you discover during an audit. For what choosing FIFO or weighted average looks like in practice, see the inventory section of the product page.