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Level 2

COGS Expense

I am working with a company who provides a driveway maintenance service. They use trucks in order to provide the service. Up until now, I have been expensing fuel as car & truck expense but the company is reavaluating his pricing based on his costs. and am wondering if I should be expensing fuel as COGS.

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Best answer September 20, 2017

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Community Champion

COGS Expense

I would leave fuel costs on page 1 of Schedule C as operating expenses since you are not reselling the fuel to the customers. Other standard operating excpenses would be the same. Reserve COGS for items you turn into a profit center - items, not services. You could make Labor OCGS by deducting payroll but to my mind that gets messy.

 

If you want to determine profitability and what should be charged then that is a different story and different calculations. You can add fuel costs as we as labor and materials to any customer job. Then you can run P&L by customer and/or job.  Only charge what is applicable to the actual jobs - not what it takes to keep the lights on - you would be open for business even on days when there is no business.

 

In the overall to determine if pricing is adequate you would even have to include depreciation on the trucks as well.  This is a good exercise for off the books use of excel. Plug in billable hours over time, depreciation, taxes, insurance, interest, debt payment to determine actual cost per hour billed. There is more involved in this but consider where yoiu take those trucks for service. Probably $80-$100 per hour flat rate shop time but chances are the average tech ony earns $15-$25 per that same hour.

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Highlighted
Community Champion

COGS Expense

I would leave fuel costs on page 1 of Schedule C as operating expenses since you are not reselling the fuel to the customers. Other standard operating excpenses would be the same. Reserve COGS for items you turn into a profit center - items, not services. You could make Labor OCGS by deducting payroll but to my mind that gets messy.

 

If you want to determine profitability and what should be charged then that is a different story and different calculations. You can add fuel costs as we as labor and materials to any customer job. Then you can run P&L by customer and/or job.  Only charge what is applicable to the actual jobs - not what it takes to keep the lights on - you would be open for business even on days when there is no business.

 

In the overall to determine if pricing is adequate you would even have to include depreciation on the trucks as well.  This is a good exercise for off the books use of excel. Plug in billable hours over time, depreciation, taxes, insurance, interest, debt payment to determine actual cost per hour billed. There is more involved in this but consider where yoiu take those trucks for service. Probably $80-$100 per hour flat rate shop time but chances are the average tech ony earns $15-$25 per that same hour.

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Highlighted
Level 11

COGS Expense

Works for me!

If there's a way to track costs with customer/job much better.

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Level 2

COGS Expense

Interesting insight. I have a lot of work to do.
Thanks.
Highlighted
Level 15

COGS Expense

You need to note who Owns the vehicles, so that we know how operating costs would be handled. We don't know if fuel is a valid auto expense or not. It could be that you need to track all auto operating costs, or these costs are for personally-owned vehicles, that are Not tracked as auto operating costs.

 

Fuel used in Equipment would be operating costs, such as Graders and Generators.

 

And Job Tracking Fuel never makes sense, because the fuel and other consubables are not bought only for a specific job. They are bought when you run low. Even repairing a tire or replacing a belt is part of Maintenance and Operations, not Job Specific. That's why Job Specific is done as Mileage or Operating Hours, given a value, or an allocation of Overhead. Example:

 

You buy a Fortruck and have an Expected amount of time available for use and a Maintenance and Repair expectation and a Useful Life = you get a rough Per Hour rate that is Job Tracked, not creating any Real Financial data. Actual Costs for maintenance and repair are already part of the P&L, as is the Depreciation allowance from the asset purchase. In these examples, you can allocate a Job Cost without it being a Real Expense.

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Level 3

COGS Expense

Absolutely use COGS it's a direct cost of goods sold. We often do this and it especially helps in states with franchise tax. In Texas for example anything under 1 mil doesn't pay franchise fees. So if Rev- COGS= less than 1mil no franchise fees.

 

You can easily change the chart of account from an expense to a COGS. Just did it today in fact:)

 


@bvindas wrote:

I am working with a company who provides a driveway maintenance service. They use trucks in order to provide the service. Up until now, I have been expensing fuel as car & truck expense but the company is reavaluating his pricing based on his costs. and am wondering if I should be expensing fuel as COGS.


 

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Level 3

COGS Expense

I also want to clarify the fuel used to operate the trucks is COGS but the fuel used for sales and admin is not COGS! So if this is your situation then create a new COGS don't change your existing expense account!

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Level 7

COGS Expense

Hi @bvindas!

There's a great article here in the QuickBooks Community that addresses parts of your question. Check it out and let me know what you think! 

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Level 3

COGS Expense

Your thoughts on this are appreciated!

@katyqbadvisors 

Things like, rock, equipment rental for jobs, insulation, pipe fittings and other materials I purchase, and bring to my job site, then completely use on the job... I have been categorizing these as COGS in my chart of account as they were already created in QB (construction materials cost, equip rental for jobs, etc)  Now I am reading that cogs is for inventory, for things you sell or resale.. which I more, move dirt, build house pads, drive ways and do some demolition jobs and small construction jobs. Am I still correct in categorizing these things as COGS?

 

Highlighted
Level 11

COGS Expense


@quinn1 wrote:

Your thoughts on this are appreciated!

@katyqbadvisors 

Things like, rock, equipment rental for jobs, insulation, pipe fittings and other materials I purchase, and bring to my job site, then completely use on the job... I have been categorizing these as COGS in my chart of account as they were already created in QB (construction materials cost, equip rental for jobs, etc)  Now I am reading that cogs is for inventory, for things you sell or resale.. which I more, move dirt, build house pads, drive ways and do some demolition jobs and small construction jobs. Am I still correct in categorizing these things as COGS?

 

 


That's Okay. No need to change it. These are still the Cost of Sales (COS) related to customer tasks/jobs.

In the QBO Chart of Accounts, they only have Cost Goods Sold (COGS) as Account Type which is QuickBooks fixed format and there is no way to change it to COS even you want it. 

You can call it COS under Name title if you want. For example, for materials, you can call it Cost of Materials - COST. For labor, you can call it Cost of Labor - COST and so on. 

 

These are the Direct Costs before the Gross Profit line in the P&L report. And that's what more important.

 

Hope this helps!

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Moderator

COGS Expense

Glad to have you here, @quinn1,

 

Cost of Goods Sold (COGS), often referred to as the cost of sales or services, are all the costs involved in selling a product. This includes direct material and direct labor expenses that go into the production of each good or service that is sold.


COGS does not include indirect expenses, like certain expenditures that support the business but do not generate revenue.

 

Let's say for example, if you're in a furniture industry, examples of COGS would include the wood, screws, hinges, glass, paint, and labor used to make the goods you sell. However, the costs to market them, the electricity needed to operate the machinery, and shipping are not included in the Cost of Goods Sold Account.

 

If these materials does not contribute in generating income, you may create a new expense account for them. Here's how:

 

  1. Go to the Settings ⚙ icon and select Chart of Accounts.
  2. Click the New button.
  3. From the Account Type ▼ drop-down menu, select Expenses.
  4. Choose a Detail Type ▼ from the drop-down menu.
  5. Enter a name for the account or use the suggested name.
  6. Hit Save and Close when done.

Once done, assign the Expense account to the item in the Products and Services page. Use this article to learn more about adding items and lists in QBO: Adding Products and Services, Customers, and Vendors to Lists.

 

Feel free to contact me if you have follow-up questions about QuickBooks. I'll be available to provide further assistance. Have a good one!

Highlighted
Level 3

COGS Expense

@vpcontroller 

I am using quickbooks desktop pro if that makes any difference if your replies : )

Thank you for your reply.

"These are the Direct Costs before the Gross Profit line in the P&L report. And that's what more important."

yes! that is exactly what I am trying to figure out, I am wanting to make sure these types of materials are being tracked correctly since they ARE materials purchased to be used/consumed at a single job site. So I can go ahead and use these COGS accounts in quickbooks desktop pro, as if they are COS accounts?

Highlighted
QuickBooks Team

COGS Expense

Thanks for coming back to this thread, quinn1.

 

Yes, you can use the Cost of Goods Sold (COGS) account. This account tracks all the cost associated with the items that you sell. COGS account also gives the total underlying costs on your Profit & Loss reports.

 

You can follow the steps provided by my colleague Jen_D above in recording items that don't contribute to generating your income.

 

If you need related articles in doing your task in QuickBooks, you can always visit our Help Articles. This contains guides and instructions on how to better manage your account.

 

I'm just a few clicks away if you have additional questions or need additional help in managing your account. Cheering you to continued success.

Highlighted
Level 11

COGS Expense

@quinn1 

 

Yes, the cost accounting method is still the same. It makes no difference what software program you use. 

 

Good luck!

Highlighted
Level 2

COGS Expense

But when it comes to filing taxes, you cannot consider these COGS on a Schedule C if you don't have a before and after inventory of it...so then are  you just using your non inventory COGS from QB as expenses-> supplies on the schedule C? 

 

Highlighted
QuickBooks Team

COGS Expense

Hi there, @lmancini220.

 

For us to make sure that we're working on the same page, may I know further details on what do you mean about the non-inventory COGS as expenses then supplies? So that we can provide with you the accurate information when you'll need to file Schedule C.

 

You can just leave a message in the comment section. I'm always around here in the Community to help. Take care and have a good one!

Highlighted
Level 2

COGS Expense

Thanks!

 

For example, a landscaping company buys soil for a project. They use the soil at a job, maybe they use all of the soil and maybe they have some left over to use at the next job. They charge the customer for the amount of soil that was used, plus labor and design work, in one invoice. 

 

Soil is bought very frequently, almost for every job (sometimes there is some left over but sometimes one job takes it all). 

 

Inventory is not being taken of the soil, so on the schedule C its price cannot be used as a COGS - the price should be used as an expense. 

 

So schedule C instructions would not have you categories this as a COGS, even though it can be debated that the soil is a "cost of the good that is sold", which is the combination of the service (labor and design) and the materials (soil). 

 

It seems weird to categorize something as a COGS in QB and then do something different on the schedule C..

 

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