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BeginnerAccount13200
Level 1

Can I book COGS if I paid and got the goods in the next fiscal period?

Hey guys,

 

I am running a business which sells goods on a pre-order basis. Since my products do not have high demand, I assess how many pieces I need to order and receive payment for them, and then I order the goods from my manufacturer. I sold goods in November 2021, but I only ordered my goods in March from my manufacturer. Can I book my COGS for the year 2021 (let's say 31st december), or should I book it for 2022 and the actual date I've ordered them? I am afraid that I am going to have a ridiculously high amount of profit in 2021 (since no COGS) and will have to pay high taxes (DE, US).

 

Thank you for all the answers in advance.

4 Comments 4
Rustler
Level 15

Can I book COGS if I paid and got the goods in the next fiscal period?

No, you have to book the expense when you pay it

 

COGS, when you file taxes is directly related to the cost of the items held in inventory that is sold

 

Ordering for a customer and not for stock is fine, but you should use a COGS type account called Cost of Sales (COS).  You can create it in the chart of accounts

Rainflurry
Level 13

Can I book COGS if I paid and got the goods in the next fiscal period?

@BeginnerAccount13200

 

The issue is not when to book COGS.  You only book COGS when the goods have been shipped to your customer regardless of when you pay for them.  The issue is whether to defer the income from the advance payments.  If you're an accrual basis taxpayer, you are allowed to defer the income until all the events have occurred that fix the right to receive the income and the amount can be determined with reasonable accuracy.  If you have not shipped the items to your customer, not all of the events have occurred to fix your right to receive the income.  Therefore, record the advance payments as a deferred revenue liability.  When you ship the goods, then all of the events have occurred and you can book the income.  You can defer the income until the end of the succeeding taxable year.

 

@Rustler 

Items held in inventory that are sold are not COGS yet, they are inventory until shipped, then they are booked to COGS.    

Rustler
Level 15

Can I book COGS if I paid and got the goods in the next fiscal period?


@Rainflurry wrote:

@Rustler 

Items held in inventory that are sold are not COGS yet, they are inventory until shipped, then they are booked to COGS.    

 

@Rainflurry

Technically true, but QB does not allow that distinction.  In QB when something is sold, it is gone and is posted to COGS, regardless of where it physically resides


 

Rainflurry
Level 13

Can I book COGS if I paid and got the goods in the next fiscal period?

@Rustler 

 

Agreed - you make a good point.  However, in this case, the OP should not sell the items until they are shipped to the end-user.  The advance payment should post to deferred revenue and then sell the items on a sales receipt and apply a discount item mapped to deferred revenue when the items ship.  This will accurately record income and expenses and keep everyone in the good graces of the IRS should they come knocking.  

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