If I pay professional fee to an attorney on behalf of my client and later invoice my client that amount with a markup. Would that professional fee be an expense or COGS?
I would classify that as COGS, like you said.
It isn't a physical item but you bought it for the purposes of performing a service, and are now done with it. It can also be called Cost of Sales, there is no Cost of Services Sold.
Same would be if you were a marketer who did Facebook advertising on behalf of someone else, the money you spend on ads is your COS.
I hope this makes sense.
I disagree, but then I like my accounting to make things easy when it comes time to fill out the income tax form
COGS means cost of goods sold, and on the income tax form, there is a section for that calculation which only deals with starting inventory value, purchases and ending value
You are paying an expense on behalf of the client, and charging him for it, with or without mark up, that is billable expense and income.
As much as I don't want to nit pick on this one. I'm going to stand my ground on those items being Cost of Sales, even if they are billed to the client, you recognize an expense on them. Otherwise you would be all revenue and no offsetting expense.
I say this having a construction client. Who bills expense every day. The idea of a billable expense is outside of the standard accounting framework. Think Debits and credits at the base level. And Quickbooks at a layer above.
The debit and credit of a billable expense is:
Cost of Sales XXXX
Accounts Payable XXXX
At the Quickbooks level, the specific expense is assigned to the customer and attached to the invoice, but that is a QB level issue, not an accounting one.
Whether the expense is related to a tangible item, Cost of Goods sold, or an intangible in the case of service fees required to perform the service to your client, Cost of Sales. It is an expense, and is deductible on your taxes at year end.