Inventory Additional Costs Some businesses buy items and improve them, and need to track the cost of the improvements as part of the cost of goods. Most of the inquiries we received about accomplishing this task were from antique dealers (including antique car businesses), but the problem exists for anyone who purchases an item, improves it, and then sells it. There are several ways to do this, but following is the method we think works most efficiently. Create an account named Inventory Improvements to track the additional costs. The account can be of the type Other Current Asset or Cost of Goods Sold (check with your accountant). The point is to separate this expense from operating expenses. Create the inventory item (do not enter a cost or a current value when you create the item). When you purchase the item, post the transaction (a bill from the vendor or a direct check) to the inventory item in the Items tab of the transaction window. When you pay for the improvements, post the bill or direct check to the Inventory Improvements account you created. (This debits the Inventory Improvements account.) Put the name of the inventory item in the Memo field so you can link your improvements to the right inventory item. When the inventory item is totally "improved", adjust the cost using the following steps: Choose Vendors | Inventory Activities | Adjust Quantity/Value On Hand. Put a check mark in the Value Adjustment checkbox in the lower left corner of the window, which adds the New Value column to the transaction window. In the New Value column, enter the total of the current value plus the additional expense(s). In the Adjustment Account field, select the Inventory Improvements account. This action credits that account, washing the debit you posted when you paid for the improvments, and debits your Inventory account to reflect the higher value. Ignore any error message you see about the adjustment account you selected, and save the transaction. The new value is the amount posted to COGS when you sell the item. TIP: This is a way to track any type of additional expenses you want to add to the original cost of an inventory item, such as freight-in charges you didn't know about when you received the inventory.