Hello, I'm wondering why AR line items show up as a negative under my COGS accounts, I.e. one item is linked to income account and the other is linked to a COGS acct.

Hello @Anonymous ,

This happens when you are purchasing and selling inventory items, as long as you have your inventory items set up properly, which is to stipulate the sales account to be linked to the item, as well as the cogs account to be linked to the item.  The purchasing and selling of inventory flows as follows:

When you purchase inventory:

DR          Inventory

CR                                                       Bank

When you sell that inventory:

DR        COGS                                                     )    These two transactions occur automatically in the

CR                                                      Inventory  )    background when you sell an inventory item.

CR                                                      Sales

DR        Accounts Receivable

                  (or Cash)

The first two lines of the entry above are recorded at cost, pulling from the cost of the item you entered into your purchase documents (bill, expense, etc.).  QBO uses FIFO (First In First Out) method of inventory valuation so when you sell items, the cost entry will be valued at the cost of the inventory purchased first.

The last two lines of the entry above are pulling from the Sales price you entered into your sales document (invoice, sales receipt, credit memo, etc.)

Hope this helps . . . good luck!

Hello @Anonymous ,

I think what you may be talking about is the Category that is a field in all product/service items.  It is simply a means of categorizing any particular item.  These are not to be confused with the actual accounts you use further down in the item's details

Whatever you have selected as an income account (inside the service item setup) is where your sale will post to when you use this item on a Sales form (invoice or sales receipt).If you have also checked off that you 'purchase this product/service from a supplier' and you use this item on purchase documents (bills, expenses, credit card charges) then there will be an entry made to COGS.

There are no entries made just by virtue of the fact that you have set up income and COGS accounts inside the item details.  There are only entries made if you purposely use this item on sales documents or purchase documents.  Even if you have entered a Sales price/rate of $0.00 or a Cost of $0.00 inside the item details, you would normally override those in the actual sales or purchase documents to whatever price you are purchasing or selling for.

It's possible that I'm not understanding what you are trying to describe.  It almost sounds like the items may not be set up properly.  Could you possibly post a screenshot of what you are trying to describe?  That would be helpful towards helping you figure this out.

Thanks,

Rochelley

Hello @Anonymous ,

I think I see what's happening.

The only time  you should see COGS under the Account heading and A/R under the Split heading, is if the item used in the transaction was an inventory item.  If it is, this would identify one of those background entries that I spoke about in my first post.

But you say you are using non-inventory items and service items.  When I look at your transactions marked in blue, it suggests that the item being used for these transactions has been set up incorrectly.  The name and the memo/description indicates the information from a purchase document, and yet the transaction type is showing as an Invoice, which is an A/R transaction.

Check the set-up of the items being used.  Ensure that in the section for I sell this product/service to my customers is checked, and has an Income Account in the Income Account field.  This field should not say Accounts Receivable or any other type of account.

Also ensure that in the Purchasing Information section under I purchase this product/service from a supplier, that the Expense Account has a COGS or expense account in the field, not any other type of account, especially not A/P or A/R.

If you discover the items have been set up incorrectly and you fix them, you would have to go back to the offending transactions, remove the product/service line, and re-enter the line in order for the new changes to take effect.

Let me know how it goes.  Good luck!

Hello @Anonymous ,

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@Anonymous wrote:

Hey @Rochelley 

 

Yes, the type is Service not Inventory/Non-Inventory. I tried changing the account as per your instructions, but it's still not showing the way I need it to on the P&L. Changing the accounts in the service item will not automatically change all of your transactions.  You have to go into the faulty transactions, delete the line, and re-enter the line and save the transaction again so it picks up on the change in the service item.  So basically my client will invoice a customer and three of the items will be Service Income and one will be COGS. She's still charging the customer for the COGS item but it should not be booked as Service Income. I'm not sure I understand what you mean by this.  Might you mean that it should be a Service income and not COGS?  That's why the PDF I sent you shows AR under the split section. When I set up the Service with Service Income and COGS in the appropriate section it moves the entire transaction out of COGS and into the Service Income section as a positive. This is the way it should be.  And if you use the same item in a purchase transaction through A/P, for example, then your account should be COGS and the split would be A/P.  Maybe what I need can't be done :(  ????  I'm going to play around with the accounts and see what happens.

 

Thanks again!

- Hilary

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Hello @Anonymous ,

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@Anonymous wrote:

Hey @Rochelley 

 

Responses to your responses :)

1) I did go back and change the item on the AR invoice after updating the account but it moved the entry to the income category not COGS.  Are you saying this is not what you think should happen?  This is expected behaviour - it is as it should be. 

2) Basically three items are booked to income and one is booked to COGS even though the customer is being billed. I'm trying to breakdown the Income vs. COGS on AR invoices. There should be no COGS entries for your A/R, unless it is the background entry made by QBO for an inventory item only.  I'm still trying to understand how you are getting an item booked to COGS on an A/R invoice.  The only way that would happen is if you pulled that line in by marking a COGS expense as a 'billable' expense that will be charged to a client.  But I believe in the P&L that COGS should always show as a positive but it's only doing that for expenses. On the P & L, the COGS will only be positive if it is relating to a purchase.  Does that make more sense?  It appears you are recovering the purchase cost by billing it on a client invoice, which will make a negative COGS entry.  This is happening because in the Expenses settings, the checkbox for Track billable expenses and items as income is not checked.  So it is simply reimbursing the COGS account it was originally charged to.  You have to decide, if you're going to use reimbursable expenses, whether you want it to refund COGS or count it as income, then check or uncheck the Track billable expenses and items as income box accordingly.  The net bottom line does not change.  But where it appears on your P & L changes.  One is positive income, and the other is negative COGS.  Does that make sense?  Go to Gear Icon --> Settings -->  Company Settings --> Expenses --> Bills and expenses --> Edit pencil to change this setting.

 

I think this will explain what is happening.  I'm sorry - I didn't realize one of the invoice lines was being populated with a line from a purchase document for that client.  It all makes sense now. :)

 

- Hilary

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Hello @Anonymous ,

I'm really sorry.  I'm having a terrible time wrapping my head around what it is you want to see.  The way this service item is set up is that it will never show as an income account.  You have I sell this product/service to my customer checked but have a COGS account in the Income account field.  This means that if you use this item on a sales form, it is going to post a negative amount to your COGS:Printing account.

Under Purchasing information you also have COGS in the Expense account field.  This means that if you use this item on a purchase document, it will post a positive amount to COGS:Printing account, as it should.

So you have your sales and your costs all running through the same account.  This is highly unusual, unless this item will always be used only as a reimbursable expense, meaning you don't expect a profit and you are charging exactly what you paid for the service.  You will have the same amount going in and out, so it is a wash to $0.00.

If you are expecting profit, it will be impossible to see on a P & L what the income really is, as it will be buried in the COGS account.

Maybe it would help to explain exactly what happens from the beginning of a transaction until it is billed to a customer.  Here are my assumptions of what is happening based on the information you've given so far (please correct me if I'm wrong):

1.  You purchase printing from a supplier with the intention to re-sell that printing to one of your customers.  When you do this transaction, here is the effect on the accounts (according to how your service item is set up):

DR         COGS:Printing

CR         Accounts Payable:Vendor Name

2.  Now you are going to sell this printing to your customer, using the same service item that you did in the purchase of the printing.  The effect on the accounts is:

CR         COGS:Printing

DR         Accounts Receivable:Customer Name

If you are not trying to make a profit on this printing but are passing it on to your client at cost, then this might be an acceptable transaction.

But if you are trying to make a profit, then this defies accounting principles because your sales and your costs are running through the same account, in the COGS section of the P & L.  Much of the required reporting to government agencies (PST, GST & Corp Tax) includes your Revenue figures.  This would be avoiding reporting revenue in this case, because none will show on your P & L as revenue.  Your sale should be hitting an income account, not a COGS account.  It should also be mentioned that on the sales side of this service item set-up, you normally would be charging both PST & GST, not GST only.

Again, I'm very sorry if I am misunderstanding you.

Hello @Anonymous 

Yes, the item you attached to your last message is correct.

If there is profit involved, then the sales portion of that service item needs to track to income and the purchases need to track to COGS, which is what this latest service item will do.

If your client is just passing on a cost to her client, then she would mark an entry entered as an expense (not COGS), as you said, as "billable".  Then she can uncheck the box in the settings that says to "track billable expenses as income" and just let the customer invoice entry reverse the original purchase entry - in and out.

But there are times people like to create their invoices directly from billable expenses (which is maybe what she's trying to do?), and with mark-up/profit, which is fine.  In that case, the box should be checked for billable expenses to be tracked as income.  All that means is that it will use the account populated in the Income account field in the service item.  So if that account is mistakenly entered as a COGS account (as it was previously), then even though she's chosen to track billable expenses as income, it's still going to go to the COGS account as a negative, rather than a positive sale.

Bottom line, yes you are correct.  You shouldn't see anything posting to COGS from an A/R Invoice for any item that is not an Inventory type item.  If you're selling inventory, then yes, you will see COGS entries (the one the system makes in the background whenever you sell an inventory item.)

I think we have it nailed down.  YAY!  :)

Hello @Anonymous ,

Yes, that is correct.  Personally, I've never been a fan of showing the reimbursable expenses I charge for to show up on the P & L as "Billable Expense Income" and a separate income account for "Markup".  Of course this is personal preference.  If you wanted, for example, all of the income from that billable expense marked as Sales:Printing, you can change those accounts in Gear Icon -->  Settings --> Company Settings --> Advanced -->Chart of Accounts --> Markup Income account and/or Billable expense income account.  There may be perfectly good reasons why someone would want to split up the billable expenses and markup to two different accounts identified as such.  I just wanted to make sure you knew there are other options.

Have a great day!

Trying to get a print out for ONE customer's P&L has nothing to do with inventory

Hi info-aldercreek,

Thanks for reaching out with your question. QuickBooks has various reports that help you to keep your eye on the bottom line. I can help point you in the right direction.

You didn't mention whether you're using QuickBooks Online or QuickBooks Desktop, so I'm including report customization articles for both: 

In QuickBooks Online, Choose Reports> you'll find a report called Profit and Loss by Customer in the Business Overview that you can filter to a single customer by clicking Customize. Under Filter, check customer and select the customer you want the information for from the dropdown. Click Run report. 

Check out this article for more on Customizing reports in QuickBooks Online.

In QuickBooks Desktop, Choose Reports > Click Company and Financial >  you'll see a report called Profit & Loss Detail > Click Customize Report Choose Name under Filter on the Filter tab > Click OK. You can review this article if you want more details on Customizing reports in QuickBooks Desktop.

If you have any questions, let me know. Take care.

Hello @info-aldercreek ,

I'm not sure what you are referring to with regards to this post.  Can you elaborate?