Inventory and COGS

Jenae85 · ‎September 12, 2018

I have an e-commence business, and have set up inventory with my estimated cost of final product for each item under inventory setup. I also buy raw materials to make the items and code those to COGS. So am I doubling the costs here? Should I do only one of the above things? Either enter the amount of each final product and not code raw materials to COGS or have the inventory item as zero cost and code raw materials to COGS?

I also have a couple products I buy and resell. When I purchase the items, should I enter those as an expense or COGS? And do I add the actual cost to the inventory item?

vpcontroller · ‎September 13, 2018

QuickBooks Inventory functionality is very basic like buy gadgets and sell the same gadgets. It's really not designed for converting from raw materials to finished products process.
If you're buying/selling products, you can follow the above article link for more information.

The only workaround is if you're buying few material items and making the final product out of that, you can create known as Zero Bill in QBO.
See example below with attachment for reference.

In this example, $1000 materials purchased and expensed to COGS (a separate account). Final product - produced 10 units. Average Cost is $100 per unit ($1,000 /10 = $100).

To enter Zero Bill:
Select create "+" sign on top > Vendors > Bill
For Payee, create a new one something like inv adj
Under account details section > select account originally used to purchase materials > enter negative amount -1,000.00. (This will reverse out previously entered COGS expense).
Under Item details section > enter product/service item, quantity and the amount same as above account details. In this case, $1,000. (This will add to the inventory item. When you create invoice or sale receipt, it will also post COGS at $100 each unit).
Entered Bill should zero out.

-

View solution in original post

vpcontroller · ‎September 12, 2018

Just to clarify - do you have QuickBooks Desktop (QBDT) or QuickBooks Online (QBO) like Plus, Essentials or Simple Start)?

Jenae85 · ‎September 12, 2018

QBO Plus.

VivienJ · ‎September 12, 2018

Hi Jenae85,

I can share a bit of information about inventory setup in QuickBooks.

How exactly did you enter your raw materials in QuickBooks Online? Once you set up your first inventory item, the program automatically adds two accounts to your Chart of Accounts.

They are the Inventory Asset (Other Current Asset) and Cost of Goods Sold. Generally, COGS is affected only when you sell the items. This account isn’t meant for the items you use to create your products, such as raw materials.

For more details about how inventory works in QuickBooks, check out these articles:

If the items you bought are used to run your business or part of your inventories cost, you can record them as expenses. However, for those you buy and resell, you can directly add them to your Products and Services List.

Here’s how:

Go to the Gear icon at the top then pick Products and Services.
In the Products and Services window, select New.
Click the product or service type.
Enter the new product or service information.
Choose Save and close.

If you want to replenish these items in the future, you'll have the option to use the Expense or Bill functionalities. Just make sure to use the item details field so you can select which one you need from the list. This way, the program will recognize an increase in volume.

To answer your last concern; yes! You can enter the actual cost so that the program can automatically calculate the COGS amounts upon the sale of your items.

That's it! Don't hesitate to let me know if there's anything else you need help with. I'm here to help anytime.

Jenae85 · ‎September 12, 2018

This is where I'm getting confused, I didn't enter the raw material into inventory. I simply expensed to Supplies & Materials - COGS when I entered the transaction into QBO. I only added the final product into the inventory. The expense account used for inventory items is COGS. So am I doubling the expenses in COGS? I guess my biggest problem here is that I don't understand how COGS and Inventory works. Nor do I understand how this effects my financials. If you could explain it in Layman's terms that would be great!

vpcontroller · ‎September 13, 2018

QuickBooks Inventory functionality is very basic like buy gadgets and sell the same gadgets. It's really not designed for converting from raw materials to finished products process.
If you're buying/selling products, you can follow the above article link for more information.

The only workaround is if you're buying few material items and making the final product out of that, you can create known as Zero Bill in QBO.
See example below with attachment for reference.

In this example, $1000 materials purchased and expensed to COGS (a separate account). Final product - produced 10 units. Average Cost is $100 per unit ($1,000 /10 = $100).

To enter Zero Bill:
Select create "+" sign on top > Vendors > Bill
For Payee, create a new one something like inv adj
Under account details section > select account originally used to purchase materials > enter negative amount -1,000.00. (This will reverse out previously entered COGS expense).
Under Item details section > enter product/service item, quantity and the amount same as above account details. In this case, $1,000. (This will add to the inventory item. When you create invoice or sale receipt, it will also post COGS at $100 each unit).
Entered Bill should zero out.

-

trelfalabs · ‎December 21, 2018

In the case of buying materials to sell one product, wouldn't another workaround be to simply create an assembly item from all those materials and sell that? You can have double sided COS/inventory items.

VivienJ · ‎December 21, 2018

Hey there, falabs!

The Community is a great avenue to interact with other users and have your QuickBooks concerns answered. Thanks for sharing your thoughts about which workaround to use.

Creating an assembly item will do the trick for those QuickBooks Desktop users. It's a process you can use to combine the inventory items and assembly costs of a finished product.

For more information, refer to this article:

Create, build, and work with inventory assembly items

Though this is a great process to follow for desktop, it isn't currently available in QuickBooks Online. As a workaround, QBO users can refer to the steps given by @vpcontroller above.

However, the program has an Inventory Bundle feature. It's use to track a collection of products or services you sell together, like a gift basket of fruit, cheese, and wine.

This may sound similar with the Inventory Assembly but you'll only be able to track lesser details. Here's an article about it:

Change Product and Service types

We will love to hear more of your thoughts about how the Inventory Assembly feature can also be beneficial to QuickBooks Online. If you have a minute, feel free to reach out to them directly by going to Help, then Send Feedback Online (QBDT), or through this link for QBO:

How do I submit feedback?

Any suggestions and feedback entered there are considered for future updates. If you need anything else, don't hesitate to reach back to me. I'll be around!.

roy241 · ‎August 14, 2019

vpcontrollers workaround seems to be consensus as the best way of handling accounts here.

Would say though, that if you want a more dedicated manufacturing module then an app like Katana might serve you well. It will manage your material and finished goods inventory alongside your production schedule automatically and real-time.

Then you can push invoices and bills directly to your QBO account.

TCL22 · ‎January 25, 2023

Qbook Desktop Enterprise V.12 fully updated

here is the COGS cost price can't put an amount like 1,25 $

what help can help?

Raw Material to Assembly than a finished product is not the original purchase price I paid.

Coz program is permitting to give less than 1 dollar, like 0,75$

Anyone can help me.

Thanks

jamespaul · ‎January 25, 2023

Hello, TCL22.

I'd like to help you out but I need more details from you.

This may not matter a lot but let's check to see if this is caused by the decimal separator format (comma in our case).

Have you tried entering an amount less than a dollar for other items and entries? Did you use a different format for the decimal separator?

Also, are you editing an existing item? If so, can you try creating a new one with the same information? Lastly, have you also tried closing and reopening QuickBooks, then re-entering the cost?

Knowing these would help me better understand the root cause of the error message.

Looking forward to your reply.

TCL22 · ‎January 25, 2023

Thanx a lot James

I can't enter item cost unless 1$ or 10$ or 120$ impossible to add 0,35$ 1,76$

As you said the problem is from comma separate,

I tried many times to enter the same item with the cost price, and close the QBook,& open it again

doesn't change anything.

Checked left Menu QBook, edit, preference, Items & inventory, Company preference, automatic price & cost updates.

just nothing changed.

Thanks

AMO

Candice C · ‎January 25, 2023

Good evening, @TCL22.

Thanks for coming back and giving us some additional information.

Before digging further, since you already tried removing the commas, let's try replaying the commas with periods to see if it accepts the amount.

If not, use the verify and rebuild tool to help fix the problem.

Please, reach back out and let us know if this works for you. We're always here to lend a helping hand. Take care!

Topics

Training

Community

Resources

Inventory and COGS