Client is a Dog Trainer

Anything you need to purchase to sell a product or service is a cost of goods or services sold expense. When you setup the sales item you also enter that you purchase the item and enter the cost of the purchase and map it to a COGS account. If you purchase training or equipment for the dogs it should be setup as a product or service item and mapped to a COGS account, this way it can be entered into your expenses and/or bills and credit card charges, as well as PO's if issued. This is how you track your COGS expenses.

You seem to be using the words Fee and Cost interchangeably.

"When he sells a dog he sell it to the new owner around $20K."

That is the Gross Revenue from the sale.

"In that cost"

Nope; that is Already part of the Purchase data you would have in this file. That isn't "in" the Sale. That is going to help the reporting determine Net and Profit.

"is the fee for the dog, training and equipment he purchased for the dog."

Exactly. That is not part of the Sales Data. That is the Costing and Expenditure entries already existing.

"He is purchasing the dog around $10k. How do I categorize this in quickbooks correctly?"

You would need to work with your own CPA, because that sort of Price Point and the delay in Acquiring, training, and then Selling, means the Dog Purchase likely is WIP = Work In Progress = Other Current Asset, until Sold. This is the same thing a Builder does for Spec Homes = investing in their own Asset, until it sells. Then, the Invested Costs are "Closed" from WIP to COGS for the date the Sale Happens.

And that is why you get Profit = from that date and these separate Gross activities.

"Will the Dog, Training and equipment go under Cost of Goods?"

Once the dog Sells, but not From the sale. From the Invested Cost transactions = the Spending.

You are incorrect. I was not using Fee and Cost Interchangeably. I was speaking to how you setup Items you sell in QBO and map the Purchase "Cost" of said item to a COGS account on your Chart of Accounts.  I give advice on how to use QBO as a certified ProAdvisor. You are assuming too much and you are incorrect in many of your assumptions.

When you setup an item correctly in QBO that you purchase and sell, you map the purchase of said item to a COGS account, this is how it is done, period. I was not speaking of "when" or "how" the COGS income and COGS expenses post to the P&L Report. Also, the training and equipment expense required for the sale of the dogs can absolutely be considered COGS expenses.

We don't need to make things seem more difficult or complicated than they actually are. This forum is used to answer QuickBooks specific questions, not accounting questions that CPA's frequently answer. You have the wrong idea here, and you are confusing people and giving them way too much information that is not necessarily being asked for.

This small business owner who sells training dogs does not seriously need to setup WIP for their dog training, and the dogs and equipment are assets of the business until they are sold, then they become income. The training is a COGS "type" expense because it is necessary to sell the dogs, AND this business owner did not specify that it takes a long time to sell the dogs either.

It is completely illogical to liken training and selling service dogs to building spec homes.

I responded to the person Asking = @ethompson2378

This is the person confusing Cost and Price, thinking the Fee they charge includes Costs. It is just Revenue. Costs will Justify the price you charge a customer.

And this is not COGS until it is Sold; the timing of this seems like WIP. That's why I recommend working with a CPA that knows your Business.

You cannot buy a $10,000 dog and COGS that, in November of 2018, then sell it in Feb 2019. That isn't Cost of Goods Sold until it Sells.

I disagree with your assumptions. A QuickBooks ProAdvisor knows that when you setup an item you sell in QBO you can add the cost to purchase the item and map it to a COGS account on your chart of accounts. And yes, it does not post to COGS until it is sold, I never said otherwise. This is how you setup tracking of COGS in QBO, the item you sale goes onto an invoice or sales receipt and the COGS is tracked because you entered the purchase price of the item on setup and mapped it to a COGS account. At no time was timing of posting to the P&L Report mentioned. And WIP is not logical for a small business that trains and sells service dogs. I actually know business owners who sell dogs and understand the nature of their business and their accounting story.

I never made Assumptions; I explained some things to take into consideration and to always work with your own CPA.

"A QuickBooks ProAdvisor knows that when you setup an item you sell in QBO you can add the cost to purchase the item"

Which is Notational; actual costs will come from the Purchase transaction where you list that product/service, which is why you can even leave the Cost side as $0, when you buy something generically or the cost varies.

"and map it to a COGS account on your chart of accounts. And yes, it does not post to COGS until it is sold"

That is only true for Inventory Items. For Service, Noninventory or other charge, the Purchase flows the data to the Cost Account you linked, from the Purchase transaction. That's why it matters when this is bought and sold as a Timely match.

"I never said otherwise."

And neither did I; I pointed out there is no COGS values in COGS for this animal until and unless it sells. You cannot buy the animal in Nov and have that hit COGS from the purchase, if this animal is on hand over time.

"This is how you setup tracking of COGS in QBO, the item you sale goes onto an invoice or sales receipt and the COGS is tracked because you entered the purchase price of the item on setup"

Not really. Item Setup is Notational. Use of the item makes actual data flow. That's why, for inventory, there is a Reduction in inventory asset for the date of Sale. But only inventory Type products have that data flow. The rest are going to track cost from the Purchase, not the sale. And I can set an inventory product as $1 each, then buy them for 85 cents each, and when I sell them, that is 85 centers each; not the Cost in the Item Setup, but the carrying value at the tim of the sale.

"and mapped it to a COGS account. At no time was timing of posting to the P&L Report mentioned."

Yes, that would be true for Inventory Products. And you cannot buy different dogs using one inventory type item. And inventory is an Asset; so is WIP. You really are picking apart what is the same type of accounting but using different functions; Dogs can be managed as Inventory Products, but now that is Your assumption. It wasn't described here.

"And WIP is not logical for a small business that trains and sells service dogs."

WIP or Other Current Asset or even Inventory = Stuff of Value on hand over time. Electricity and printer paper are Expense = Poof! All gone. Stuff on hand that has significant invested value is Asset.

"I actually know business owners who sell dogs and understand the nature of their business and their accounting story."

OMG, you want to  get into it? I had a kennel for years and ran Sled Dog teams. There is no reason to go into this; the person has been encouraged to ask their own Accountant. That isn't anyone here on the internet forum of QB users.

I was specifically talking about setting up an inventory item in QBO. You clearly just want to debate people on this forum for your own personal reasons. I stand by my opinion of your comments. 

When setting up inventory items in QBO you should enter whether you purchase the item and include the cost, which of course can change. This is common sense. Then you can add the item to PO's, bills, expenses and credit card charges, and adjust the cost to actual of course. For tracking purposes it is helpful to create Product and Service items that you purchase so that you can select them to add to PO's, bills, expenses and credit card charges. I know you like to do things "manually", but I like to use the technology to save time.

You assume that these small business owners cannot understand their accounting and need a CPA to tell them how to manage their accounting transactions in QBO, that is not true, they are very smart and will ask their Accountant or CPA for advice when needed, they don't need you to tell them to do so, it is really getting old. 

WIP does not make sense for this business because they are not a Manufacturing Company. They buy a smart dog, train it for service and sell it. This is simple accounting in my view. 

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@Regina_Lend_A_Hand_Accounting wrote:

 

When you setup an item correctly in QBO that you purchase and sell, you map the purchase of said item to a COGS account, this is how it is done, period. I was not speaking of "when" or "how" the COGS income and COGS expenses post to the P&L Report.

 

 Also, the training and equipment expense required for the sale of the dogs can absolutely be considered COGS expenses.

 

Actually it depends

Inventory cost is defined as the sum of all costs to get an item on hand and ready to sell.
With that in mind, what type of equipment do you see as being required to sell a dog?  Dog training equipment in that respect would most likely be limited to collar and  maybe muzzle & leash.

Training time is either not a cost (no employees), or it is payroll expense, depending on the situation.  Moving a portion of payroll expense to COGS can be done, but why make a lot of extra work for yourself, doing so will not affect the bottom line

And if you are going to consider posting a portion of payroll expense as COGS, then you can not do so until the dog is sold.  Which means during training you would be accumulating what should be an expense as an asset.  If training goes over the year end with the dog being sold, there is no COGS associated with that dog to post and the resultant net income rises for that year.

More debate, awesome!

If this business owner pays an outside contractor to train the dogs they purchased for resale and the dogs cannot be sold without training because they are being sold as service dogs that have been trained to be service dogs, then in theory, the training would be a Cost of Goods Sold expense when the service dog is sold.

The original post noted that the business owner "purchased" training and equipment for the dogs. Although, in retrospect he referred to the dogs as "protection dogs", which is slightly different than "service dogs", so in all we don't have enough actual detail to determine how we as Accountants would record the accounting transactions. We only know that purchases made that are necessary to sell something can be considered a COGS type expense when they are sold.

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@Regina_Lend_A_Hand_Accounting wrote:

More debate, awesome!

 

If this business owner pays an outside contractor to train the dogs they purchased for resale and the dogs cannot be sold without training because they are being sold as service dogs that have been trained to be service dogs, then in theory, the training would be a Cost of Goods Sold expense when the service dog is sold.

 

outside contractors by definition are not COGS, in fact the 1099 mapping will not select the cogs account as a contractor expense.

 

And do you think it helps a lot if advice is given based upon an unstated IF

 

The original post noted that the business owner "purchased" training and equipment for the dogs. Although, in retrospect he referred to the dogs as "protection dogs", which is slightly different than "service dogs", so in all we don't have enough actual detail to determine how we as Accountants would record the accounting transactions. We only know that purchases made that are necessary to sell something can be considered a COGS type expense when they are sold.

 

Only if the items bought, or the expense paid, is part of the sale - you made a blanket statement that yes they are.

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Yes, I see we finally reached the Same Conclusion: "so in all we don't have enough actual detail to determine how we as Accountants would record the accounting transactions."

I've been stating all along they need to ask their own CPA.

You must not have done 1099 mapping in QBO recently. I just did a test entry of a COGS contractor expense for $750.00 and 1099 mapped it and it was prepared to issue a 1099. See attached. You can 1099 map a COGS contractor expense, you are incorrect.

I hope our communications helped at least in part, at the end of the day that is all that matters.

Who pays $20k for a dog?!

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@Regina_Lend_A_Hand_Accounting wrote:

You must not have done 1099 mapping in QBO recently. I just did a test entry of a COGS contractor expense for $750.00 and 1099 mapped it and it was prepared to issue a 1099. See attached. You can 1099 map a COGS contractor expense, you are incorrect.

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You are right it has been awhile, I got all my contractors to accept third party payments so I do not have to do 1099's, thanks for letting me know

Even if you can, does not mean you should.  And I doubt that the IRS would agree that a dog trainer working at a dog training company, qualifies as a contractor.

An independent contractor is a person or entity contracted to perform work or provide services to another entity as a non-employee. As a result, independent contractors must pay their own Social Security and Medicare taxes. The payer must correctly classify each payee as either an independent contractor or an employee. This dog trainer would not be an employee, they would simply be performing a service as a contractor with their own service business. The IRS is concerned about taxes, they don't dictate whether you can hire a 1099 contractor for service.

If the contractor work is being sold, it is a Contractor (COGS) type expense which is included in 1099 mapping and reporting if the contractor is 1099 eligible. I have not had an issue with mapping COGS type expense accounts for 1099 eligible vendors in QuickBooks, which I have been using for several years.

see the attachment

That is common sense and not news or different from what was communicated previously. A Company hires a contractor to perform services and does not set their schedule as they would an employee, this fact and the fact that the service provider has their own business and pays their own taxes is what keeps it from being "merged", so to speak.  They are a separate businesses (entity) therefore they are not a merged entity.

DEFINITION:

merge
combine or cause to combine to form a single entity.