October 16, 2026 · Mitt Patel · 6 min read
It's August, and you just wrote a check for twelve condensers before the fall price increase. Your bank balance drops hard, and when your bookkeeping shows a $12,000 loss for the month, you start wondering if you made a mistake. Then October hits, you install eight of those units, and suddenly the business looks like it's printing money.
Why this happens
Most small heating and cooling businesses record a purchase the moment they pay for it. You buy equipment, the cost hits your books that day as an expense. It feels simple, and for a lot of purchases, it is simple. Fuel, small tools, a box of filters are generally fine to expense right away.
Equipment bought ahead of the season is different. You're not buying it to use this week. You're buying it to have on hand for jobs that will happen over the next two, three, sometimes four months. If you expense the full cost the day you buy it, your books say the buying month was terrible and the install months were great. Neither is true. The money didn't disappear in August and reappear in October. It just moved from cash into a stack of boxes in your warehouse.
This matters because owners make decisions off these numbers. If August looks like a disaster, you might hold off on a needed hire, delay a truck repair, or pass on a bulk deal from your supplier next year because "that's when things get tight." If October and November look unusually strong, you might think you have more room than you do, and spend against profit that's really just equipment cost showing up late and out of order. Either way, you're steering by a distorted gauge.
A worked example
Say you buy 12 condensers in August for $1,000 each, so $12,000 total. You install 8 of them in October and the remaining 4 in November.
If you expense the full $12,000 in August, your August books show a $12,000 hit with nothing to show for it yet. October and November show installs with no matching equipment cost, so profit looks inflated both months.
Here's how it works if you carry the units as inventory instead:
- August: you pay $12,000 cash, but your books record it as inventory, an asset, not an expense. Profit and loss for August isn't touched.
- October: 8 units go into jobs. You move $8,000 (8 units x $1,000) from inventory to cost of goods sold, matched against the revenue from those 8 installs.
- November: the remaining 4 units go into jobs. You move the last $4,000 to cost of goods sold, matched against those install jobs.
Now each month's profit reflects what actually happened that month: cash going out in August, revenue and matching cost showing up as jobs get installed. No month looks artificially bad or artificially good.
How to set it up
- Open an inventory account. In QuickBooks Online, this is an "other current asset" account, often just called "equipment inventory" or "inventory asset." This holds the cost of units you've bought but haven't installed yet.
- Record purchases to inventory, not expense. When you buy condensers, furnaces or air handlers ahead of the season, the bill or check gets coded to the inventory account, not to an expense account like "equipment" or "cost of goods sold."
- Track what you've got on hand. Keep a simple running list, by model or unit, of what's in the warehouse and what it cost. A spreadsheet works if you're not using QuickBooks Online's inventory tracking features, but if you move real volume, turning on inventory tracking in QuickBooks Online will do this counting for you.
- Move cost to the job at install. When a unit goes into a specific job, record a journal entry (or let QuickBooks Online's inventory feature do it automatically) that reduces the inventory account and increases cost of goods sold, tied to that job or invoice.
- Reconcile what's left monthly. At month end, the balance in your inventory account should match what's physically sitting in the warehouse, valued at what you paid for it. If it doesn't match, something was installed but not recorded, or recorded but not installed.
What undoes this
- Expensing on purchase out of habit. If whoever enters bills defaults to an expense account because that's how small tools and supplies are usually coded, equipment bought for inventory slips through the same way.
- Forgetting to move the cost at install time. Carrying equipment as inventory only helps if you actually transfer the cost when the job happens. If units sit in the inventory account forever, your cost of goods sold understates what jobs actually cost, and your profit on those jobs looks better than it is.
- Mixing inventory equipment with equipment bought for an immediate, specific job. If you buy a furnace today for a job starting tomorrow, there's no real distortion from expensing it right away since purchase and install land in the same period. The inventory treatment matters most for equipment bought ahead of when it'll be used.
- Not tracking which unit went where. If you can't tell which job used which condenser, you can't move the right cost to the right job, and your job costing becomes much less reliable.
Monthly checklist
- Confirm every equipment purchase this month was coded to inventory, not expense, unless it was installed immediately.
- Pull the list of units installed this month and confirm their cost moved from inventory to cost of goods sold against the right jobs.
- Check that the inventory account balance matches what's actually sitting in the warehouse.
- Review job profitability for installs this month now that equipment cost is properly matched.
- Flag any units that have been sitting in inventory for several months unsold or uninstalled, since that ties up cash you might want to put elsewhere.
Common questions
Does this apply to every part I buy, or just big equipment?
This is mainly worth doing for furnaces, condensers, air handlers and similar big-ticket items you buy ahead of the season. Small parts, filters, fittings and consumables are usually fine to expense when bought, since the amounts are small and the timing gap between purchase and use is short. Where exactly to draw the line depends on your volume and how far ahead you typically buy.
What if I buy a unit and install it the same week?
If purchase and install happen close together in the same month, there's little distortion either way, and you can expense it directly if that's simpler for your workflow. The inventory treatment earns its keep when there's a real gap between buying and installing.
Can QuickBooks Online handle this automatically?
Yes, if you turn on inventory tracking and set up your condensers, furnaces and air handlers as inventory items. QuickBooks Online will then move the cost from inventory to cost of goods sold automatically when you use the item on an invoice. Whether this is worth setting up depends on how many units you carry and how often you buy ahead.
How do I know what my ending inventory is worth?
Your inventory account balance should equal the cost of every unit you've bought but not yet installed. If you bought 12 units at $1,000 each and installed 8, your ending inventory is $4,000, matching the 4 units still in the warehouse. This should be checked against what's physically there, not just what the books say.
North Hudson Bookkeeping sets up this kind of equipment tracking for heating and cooling businesses and keeps it current month to month, so your numbers aim to reflect what's actually happening in your business rather than just when the checks were written. The first call is free if you want to talk through how it would work for you.
