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Cost of Goods Sold (COGS) represents the direct costs of producing or purchasing the goods a company sells during a specific period. Properly recording COGS in QuickBooks ensures accurate financial reporting, tax compliance, and effective business decision-making.
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HowtoProperlyRecordCostofGoods Sold(COGS)inQuickBooksDesktop& Online CostofGoodsSold(COGS)representsthedirectcostsofproducingorpurchasingthegoodsa companysellsduringaspecificperiod.ProperlyrecordingCOGSinQuickBooksensures accuratefinancialreporting,taxcompliance,andeffectivebusinessdecision-making.Thisguide explainshowtorecordCOGSinQuickBooksDesktopandQuickBooksOnline,highlightingkeysteps,bestpractices,andcommonpitfallstoavoid. WhatistheCostofGoodsSold(COGS)? COGSincludesthedirectcostsassociatedwithproducingorpurchasinggoodsthatabusiness sells.CommoncomponentsofCOGSinclude: Rawmaterials Directlabor Manufacturingoverhead(forproducedgoods) Purchasepriceofresaleitems Shippinganddeliverycosts(relatedtoinventoryacquisition)
WhyisCOGSimportant? • COGSissubtractedfromsalesrevenuetocalculategrossprofit,acriticalmeasureofbusiness profitability.PropertrackingofCOGShelps: • Monitorprofitmargins. • Identifypricingstrategies. • Prepareaccuratetaxreturns. • RecordingCOGSinQuickBooksDesktop • FollowthesestepstorecordCOGSaccuratelyinQuickBooksDesktop: • Step1:SetUpYourChartofAccounts • OpenQuickBooksDesktopandnavigatetoLists>ChartofAccounts. • ClickAccount>Newtocreateanewaccount. • ChooseExpenseastheaccounttypeandnameit"CostofGoodsSold"or"COGS." • Savetheaccount. • Step2:ConfigureItemsforCOGSTracking • GotoLists>Item List. • CreateoredititemsusedinyourbusinessbyselectingItem>Newordouble-clickingan existingitem. • Forinventoryitems: • SelectInventoryPartasthetype. • Enteritemdetails,includingpurchasingandsalesinformation. • Ensurethatthe"COGSAccount"issettotheaccountyoucreatedinStep1. • Savethechanges. • Step3:RecordPurchases • GotoVendors>EnterBillsorWriteCheckstorecordinventorypurchases. • Selectthevendor,date,andappropriateexpenseaccountforthetransaction. • Enterdetailsforeachpurchaseditem,includingquantityandcost. • Saveandclose. • Step4:RecordSales • NavigatetoCustomers>CreateInvoicesorSalesReceiptstorecordsales transactions. • Additemssoldandensurequantitiesandpricesareaccurate.
QuickBookswillautomaticallycalculatetheCOGSbasedontheinventoryandexpense accounts. • Savethetransaction. • Step5:RunCOGSReports • GotoReports>Company&Financial>Profit&LossStandardtoviewtheCOGS foraspecificperiod. • UsetheInventoryValuationSummaryreporttoreconcileinventorybalances. • RecordingCOGSinQuickBooksOnline • RecordingCOGSinQuickBooksOnlinefollowsasimilarprocessbutwithsomedifferences due totheplatform’sinterfaceandfeatures. • Step1:SetUpYourChartofAccounts • NavigatetoSettings>ChartofAccounts. • ClickNewtocreateanewaccount. • SelectCostofGoodsSoldastheaccounttypeandnametheaccount. • Savetheaccount. • Step2:ConfigureProductsandServices • GotoSettings>ProductsandServices. • CreateoredititemsbyselectingNeworclickingthepenciliconforexistingitems. • Forinventoryitems: • Ensurethe"Inventoryassetaccount"iscorrect. • Setthe"Incomeaccount"and"COGSaccount"appropriately. • Savechanges. • Step3:RecordPurchases • Goto+New>Expenseor+New>Checktorecordpurchases. • Selectthevendorandthe"Category"astheappropriateCOGSaccount. • Enterpurchasedetails,includingquantitiesandcosts. • Saveandclose. • Step4:RecordSales • Goto+New>Invoiceor+New>SalesReceipttorecordsales. • Additemsandconfirmquantitiesandprices. • QuickBooksOnlineautomaticallyupdatesCOGSbasedoninventorymovement. • Savethetransaction.
Step5:RunCOGSReports GotoReports>ProfitandLosstoviewCOGS. UsetheInventoryValuationSummaryforadditionalinsights. BestPracticesforRecordingCOGSinQuickBooks RegularlyReconcileInventory:Ensureinventoryrecordsmatchphysicalcountsto avoiddiscrepancies. UseAccurateItemSetup:ProperlyconfigureitemstolinkwiththecorrectCOGS account. MonitorCOGSTrends:AnalyzeCOGSreportstoidentifyunusualspikesordeclines. SeparateCOGSandExpenses:MaintaincleardistinctionsbetweenCOGSand operatingexpensesforaccuratefinancialreporting. AutomateProcesses:UseQuickBooksautomationfeaturestostreamlineinventory trackingandCOGScalculations. CommonMistakestoAvoid IncorrectAccountSetup:FailingtoassignthecorrectCOGSaccounttoitemscanlead to inaccuratereporting. IgnoringInventoryAdjustments:Notupdatinginventorylevelsforreturns,damages, orshrinkageskewsCOGS. MixingExpenses:RecordingunrelatedexpensesunderCOGSdistortsgrossprofit calculations. OverlookingReports:FailingtoreviewandanalyzeCOGSreportscanleadtomissed insightsintoprofitability. FAQs What’sthedifferencebetweenCOGSandoperatingexpenses? COGSincludesdirectcostsofproducingorpurchasinggoodssold,whileoperatingexpenses coverindirectcostslikerent,utilities,andmarketing.Distinguishingbetweenthetwoensures accurategrossprofitcalculation. CanIrecordCOGSwithouttrackinginventoryinQuickBooks? Yes,youcanmanuallyrecordCOGSbycategorizingpurchasesundertheCOGSaccount. However,trackinginventoryprovidesmoreaccuratefinancialinsights.
HowdoIfixincorrectCOGSentriesinQuickBooks? • TocorrectCOGSentries,reviewtransactionslinkedtotheCOGSaccount,adjustitemsetups, andreconcileinventory.UseQuickBooksreportstoidentifydiscrepanciesand make adjustments asneeded. • Conclusion • RecordingCOGSaccuratelyinQuickBooksDesktopandOnlineisacriticalaspectoffinancial managementforbusinessesthatdealwithinventory.Bysettingupyouraccountscorrectly,linkingitemsproperly,andregularlyreviewingreports,youcanmaintainprecisefinancialrecordsinQuickBooksandmakeinformeddecisions. Additionally,leveraging automationand integratinginventorytoolscansavetimeandreduceerrors.Byfollowingthisguide,youcan ensurethatyourCOGSisrecordedcorrectlyandcontributestotheoverallsuccessofyour business. • ContactUs • ContactInformation: • Email:support@ebetterbooks.com • Phone:+1-802-778-9005 • Website:ebetterbooks.com
