Inventory that is returned to you and you are going to repair it, is something that QB never thought of (like so many other inventory activities). Since QB did not take this kind of thing into account when designing the software (as well as many others) you have to juggle things.

Return the item to the original stocked item. So on the sales receipt you would sell one for zero price and receive one for zero price (to receive one set the quantity to negative one [ -1 ]), in the description block of the one returned enter what is wrong with it.

You are going to need to create two new items for each item that is returned.

[item-name]-D for the returned damaged item
[item-name]-R for the repaired item that is now for sale

Then bring up inventory adjust, mark it as a value adjustment, select a clearing expense account as the adjusting account. Find the item and lower the qty by one. On the adjusting screen it will tell you the value of the adjustment, remember it. Find the D-item and increase the qty on hand by one, and in the new total column enter the value you remembered.

That takes the item out of ‘for sale’ inventory and puts it in damaged inventory with a cost.

As I understand the law, and I am not a lawyer, you can’t sell repaired items as new. When the item is repaired you use the same procedure as above to move the repaired item out of D-item and into R-item with a cost.

Repair costs should be accumulated in an expense account set up for that purpose, then when you do the adjustment, you have to do it twice. Once to move the item and cost from D-item to R-item. Then you do it again but select the repair expense account as the adjusting account, set the adjustment as a value adjustment, leave the qty alone, and add the repair costs to the current value and enter it in the new total column.