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Level 1

COGS or Expense?

Help. If a car mechanic purchases a car part at full price with tax and then installs it on a customer's car and the customer reimburses the mechanic for the cost of the part and then pays labor on top... can the mechanic record the purchase of the car part as 'Cost of Goods Sold'? or is it simply a materials expense?

 

Thank you for your help!

 

Solved
Best answer January 03, 2019

Best Answers
Community Champion

COGS or Expense?

Not only is the part COGS but so is the cost of payroll directly attributed to this particular service

"The cost of goods sold (COGS), also referred to as the cost of sales or cost of services, is how much it costs to produce your products or services. COGS include direct material and direct labor expenses that go into the production of each good or service that is sold."

 

But your net result will be the same recording the immediately resold part as parts/supplies since it was not in inventory and does not remain in inventory resulting in any year end adjustment of inventory value. It can be cumbersome to allocate  labor across each job but any work your employees do that is not "billable" is not COGS (plowing parking lot, counting inventory, etc)

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9 Comments
Community Champion

COGS or Expense?

Not only is the part COGS but so is the cost of payroll directly attributed to this particular service

"The cost of goods sold (COGS), also referred to as the cost of sales or cost of services, is how much it costs to produce your products or services. COGS include direct material and direct labor expenses that go into the production of each good or service that is sold."

 

But your net result will be the same recording the immediately resold part as parts/supplies since it was not in inventory and does not remain in inventory resulting in any year end adjustment of inventory value. It can be cumbersome to allocate  labor across each job but any work your employees do that is not "billable" is not COGS (plowing parking lot, counting inventory, etc)

View solution in original post

Level 1

COGS or Expense?

How do I show the wages that I paid employees via payroll as a COGS? There has to be a report that shows patrol employee wages applied to a specific job. I have a construction company and have carpenters that work on individual client jobs. Currently carpenter wages shows up in operating expense not in COGS event though we tag them to a job in the payroll reporting timesheet.  What report would should those wages as a COGS. I need that report to see if we are on budget for each specific job. 

Level 15

COGS or Expense?

Car part bought specifically for that one customer = COGS. Other COGS = misc belts and plugs and filters you keep on hand and use for services as commonly required for servicing vehicles.

 

Supplies and Materials Expense = bulk rags, clamps, rubbing compounds, cleaning solutions, filters for the Parts Cleaner drum, saw blades, sanding disks, tie wraps.

Level 1

COGS or Expense?

An individual auto repair shop would follow: COG(service) for repair to vehicle, cogs-direct-parts, cogs-direct-labor. Now since the part is purchased and immediately placed on the service vehicle. what account will it pass through? Where does the income from the customer go through?

Level 1

COGS or Expense?

Hello, I have a similar situation with a boat repair shop. So, to make sure I understand, a part I bought at a shop will go under COGS, and then when I install it on a boat and charge customer for it, it is still COGS?

Are you stating that if I charge for labor, it is not put under "Services"?? How does QB know what is parts sale and what is labor if it all goes in the same bucket?

 

Thank you!

Sam

Level 3

COGS or Expense?

COGS is an expense account, which means you only charge that account when you use the product. So when you buy it, it goes into your inventory account. When you use it, it goes into your expense account (COGS). You would need to invoice the customer for the item. Then it shows up in 3 accounts if you run a report on that product/service, once as in asset inventory (inventory added when you buy it, inventory subtracted when you sell it), once as income (takes away from inventory) and once as a tally of COGS (expense). 

 

You can have difference products/services that all charge to COGS as the expense, labor included. 

 

COGS is confusing and I avoid it if I can - in some cases you cannot avoid using COGS, as determined by the type of company you are and the IRS. You can use COGS if you want to, but if you do you HAVE to keep track of inventory if you want to take the deduction on your taxes, so it is harder (in my opinion). 

 

You can also just buy the boat part and categorize it as a regular job supplies expense. You can still bill someone for it on an invoice as a product/service, with out using COGS and Inventory. Either way, you have to have the boat part listed as a product/service, which is where you will tell QB what accounts to use when purchasing it and selling it. You don't have to even sell it if you don't want to keep track, just un-check the box "I sell this item" when creating the product/service (you need to do this for everything you buy, even if you don't sell it).

 

Different businesses need different levels of granularity - sometimes doing less can be more and the value of tracking everything down to the nut and bolt starts to degrade if its not done consistently. 

Level 2

COGS or Expense?

This was really helpful.  I buy auto parts for each repair job and can't figure out where to report it.  I don't have inventory, so I thought regular expense, but it is used for a specific job, so then I thought COGS.  Right now I categorize all parts purchased for jobs as Expense.  If I categorized it as COGS, I would need to track Inventory, right?  More complicated.  Plus I have Simple Start which doesn't have Inventory.

 

Hopefully, this will work.

Thanks again for your explanation.

QuickBooks Team

COGS or Expense?

Hi there, CT58.

 

Yes, you're right. Cost of Goods Sold (COGS) is used to successfully track inventory. 

 

Generally, inventory COGS is only affected when you sell inventory items on invoices or sales receipts. Once you make a sale, you'll notice that the inventory transaction credits the Inventory Asset account and debits the COGS accounts.

 

Additionally, we'll have to take note that the Inventory feature is only available in QuickBooks Online Plus and Advanced. Since you're using the Simple Start version, I'd suggest consulting your accountant to know what's the best way in categorizing these transactions.

 

Here are some articles that you can read to help manage your account in case you'll be advised to set up inventory:

 

If I can be of any additional assistance, please don't hesitate to insert a comment below. Have a pleasant day ahead.

Level 1

COGS or Expense?

Hello,

I have a questions about this.

I purchase machinery from my vendors and sell them to my clients. 

Is this purchase an expense? or COGS?

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