Cost of Goods Sold or Expense??? Quickbooks Questions
What should the equipment and materials we purchase to complete jobs for our customers be listed as: Cost of Goods Sold or Expense?
That’s a great question which often confuses QuickBooks users (including this one!) Before we start on this blog, it should be noted that if you REALLY aren’t sure, it’s always wise to contact a CPA. Also, most engagements come with contracts that outline expense information, so you should probably check with that, too.
When thinking about Expense vs Cost of Goods Sold, first it’s important to understand that both of these are “expense” accounts. It’s also notable that there are tax regulations on what counts as an expense (again: contact a CPA). The easiest way to figure out whether or not an item should be listed as COGS (Cost of Goods Sold) or an Expense is to ask yourself three questions:
- Is this item something that we have in our inventory and are selling/charging a client for? If you answered yes, then this is most likely a COGS item.
- Is this item something that you will use to create something else (ex: you buy hinges for kitchen cabinets that you are installing for a customer)? If you answered yes, then this is most likely a COGS item.
- Is this item something you personally had to purchase because you were working on a specific job (ex: travel costs)? If you answered yes, then this is most likely an Expense item.
Most business that do not have inventories or are not involved in construction probably won’t use Cost of Goods Sold for anything. Expenses such as meals, entertainment expenses, computer software, gas and travel costs, and lodging costs are usually expenses. Most COGS items are purchased by companies, whereas most expense items are purchased by individual employees of a company. If you still aren’t sure, feel free to leave a brief explanation in the comments of this blog, and we’ll do our best to point you in the right direction.
Did you know: You can use ProOnGo to track your reimbursable expenses and company credit card expenses in QuickBooks! Check out all the ways we sync to QuickBooks.