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Frequent Explorer *

Inconsistent CoGS

Hello, when I purchase inventory there are 2 cost expenses: cost of purchase and freight. The cost of purchase is usually the same, but the freight is always fluctuating. I am unsure of how to record the freight cost. Since I am paying the freight expense to a shipper - not my supplier, it will not be automatically calculated into the CoGS. Therefore, I must assign the freight expense to the CoGS account (as a sub-category). If so, the freight cost is not broken down per individual units. That said, upon each sale I must manually keep track of which shipment the inventory is from to update the CoGS amount for this sale. This sounds very cumbersome and there must be a more efficient way to solve this. Any ideas would be appreciated!
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Best answer 07-05-2019

Accepted Solutions
Established Community Backer ***

Re: Inconsistent CoGS

This is a very common situation.  "Landed cost" tracking is a lot of extra work so first consider if its worth doing. 

If your incoming freight costs are a very low % of total good cost and/or if you receive stock orders very frequently - then simply expensing the freight to a COG account will give pretty good and  consistent results.

If you feel you must do 'landed cost', then the method suggested earlier is a confusing oversimplification.  You should always post vendor bills as-received, anything else will lead to horrible confusion.

Post the inventory items purchase and also post the freight bill as a normal expense.  Then make an 'inventory adjustment' to increase the cost of the inventory items by the freight amount - and set the 'freight expense' as the 'adjustment' account.

If you have shipped more than 1 product per delivery then its up to you to manually calculate how to allocate the freight - then use than allocation when making the inventory adjustment.

4 Comments
QuickBooks Team

Re: Inconsistent CoGS

Hello hanky,

 

You can include the freight cost by adding the total purchase amount in creating your bill or expense. Let me walk you through the steps.

  1. Click Vendors, then Enter Bills.
  2. Click the Items tab, then enter the Item and QTY. Leave the Cost column blank. QuickBooks will calculate the individual unit cost for you.
  3. Enter the Amount column. Include the freight amount in this column.
  4. Click Save & Close.

Once the item is sold QuickBooks will then calculate the COGS amount.

 

Please refer to this handy article for more information: Understand Inventory Assets and COGS tracking.

 

You might also want to check our Shipping Manager feature to let you ship and mail with UPS, USPS, and FedEx right from your QuickBooks. If so, please read this article for the detailed steps: Set up and use QuickBooks Shipping Manager.

 

Feel free to reach out anytime if you have additional concerns. The Community is always here for you.

 

BILL.JPG

Established Community Backer ***

Re: Inconsistent CoGS

This is a very common situation.  "Landed cost" tracking is a lot of extra work so first consider if its worth doing. 

If your incoming freight costs are a very low % of total good cost and/or if you receive stock orders very frequently - then simply expensing the freight to a COG account will give pretty good and  consistent results.

If you feel you must do 'landed cost', then the method suggested earlier is a confusing oversimplification.  You should always post vendor bills as-received, anything else will lead to horrible confusion.

Post the inventory items purchase and also post the freight bill as a normal expense.  Then make an 'inventory adjustment' to increase the cost of the inventory items by the freight amount - and set the 'freight expense' as the 'adjustment' account.

If you have shipped more than 1 product per delivery then its up to you to manually calculate how to allocate the freight - then use than allocation when making the inventory adjustment.

Frequent Explorer *

Re: Inconsistent CoGS

Hello ShiellaGraceA, Thank you! So if I use this method, I will not record the payment to the shipper at all - rather I will add it to my payment to my supplier. For example: The total I paid my supplier = $1,000, and the shipping cost =$200. I enter 1 payment to my supplier for $1,200, and do not enter any payment to my shipper. This is not so accurate since I pay the shipper separately and much later than I pay my supplier.
Frequent Explorer *

Re: Inconsistent CoGS

Hello MikeinBC, this sounds like a great solution! Thank you!

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