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3j
Level 1

Cost of goods sold issues in Profit and Loss Statement

I have a negative amount showing in cost of goods sold.  I checked my item list and the items are associated with an income account.  I don’t know how I fix this

16 Comments
Moderator

Re: Cost of goods sold issues in Profit and Loss Statement

Hello 3j,

 

Negative amount in Cost of Goods Sold can occur if you're using items for sales transactions without creating purchases.

 

I'd recommend creating bills for the negative inventory, non-inventory, and service items.

 

It's also best to reach out to your accountant to see if they have other ways of correcting the amounts.

 

Let us know if you need anything else.

Level 15

Re: Cost of goods sold issues in Profit and Loss Statement


@JamesDuanT wrote:

Hello 3j,

 

Negative amount in Cost of Goods Sold can occur if you're using items for sales transactions without creating purchases.

 

No that is not correct

 

 

Level 15

Re: Cost of goods sold issues in Profit and Loss Statement


@3j wrote:

I have a negative amount showing in cost of goods sold.  I checked my item list and the items are associated with an income account.  I don’t know how I fix this


On the P&L, double click on the COGS to drill down and get a transaction report

 

Any number in that transaction report that is a negative (or a credit) is the problem.  You can double click on the transaction to bring it up and see what you were trying to do.  With out seeing the data we can not figure it out.

Level 1

Re: Cost of goods sold issues in Profit and Loss Statement

This is helpful, I am selling merchandise and categorizing the items as cost of goods sold. They look like a positive charge when the invoices are pulled up. but my P&L is still negative for COGS

QuickBooks Team

Re: Cost of goods sold issues in Profit and Loss Statement

Hi @jennifermirandal,

 

@Rustler is correct. You'll need to review your report to learn what's causing the negative amount in your COGS. Let me provide a few more details.

 

The Cost of Goods Sold (COGS) is a reduction in your income. If it shows as a negative amount on the report, then this will show as an addition to your income. 

 

There are some transaction types wherein they'll show as a negative amount on your COGS. One example is when you enter a negative amount on your Refund Receipt.

 

Please leave a comment below if you have any other concerns. 

Level 15

Re: Cost of goods sold issues in Profit and Loss Statement


@jennifermirandal wrote:

This is helpful, I am selling merchandise and categorizing the items as cost of goods sold. They look like a positive charge when the invoices are pulled up. but my P&L is still negative for COGS


Check your items

be sure the income account block actually has an income account selected

 

If you are using inventory items, Inventory  items have three accounts
expense = COGS
income = your sales income account
asset = inventory asset

 

Level 1

Re: Cost of goods sold issues in Profit and Loss Statement

Hello,

 

I've read through the discussions in this and related threads but I still am uncertain if our P&L is correct.

 

We manufacture shelf-stable salsas and sauces using 3rd party copackers.  When we receive product, it's added to inventory and the fully loaded cost is assigned to each unit (manufacture, label, shipping, etc).  We also have an account called Product Costs (type=COGS).  Under Product Costs are subaccounts for each component that goes into creating the product; copacker manufacturing, labels, gift boxes, shipping, etc. All subaccounts are type =COGS.

 

When I look at the P&L, COGS accurately reflects the total avg cost of the units sold to date, which is $52,294.  However, the Product Costs account and all its subaccounts are listed under COGS as well, which is $41,201.  So in the P&L, COGS + Product Costs = Total COGS of $93,495 and makes the gross profit a negative number.  Very gross and very negative

 

I'm certainly no expert in Accounting but if we're entering the fully loaded cost for each item when it's received into inventory, we're essentially double-counting our cost of goods sold by defining the Product Costs account and its subaccounts as type=COGS.  I would think that if we're already entering a fully loaded cost into inventory, these accounts would be classified as TYPE=expense instead of TYPE=COGS. 

 

Am I looking at that correctly or is there something I'm missing?  Any guidance would be most greatly appreciated.
 

Level 1

Re: Cost of goods sold issues in Profit and Loss Statement

My apologies, I forgot to note that we are using QB Desktop 2019.

 

As I said, I'm not familiar with QB at all but in thinking about this further, if we have accounts set up to track product manufacture costs, which are classified as type=COGS, I wonder if we left the item cost blank when we receive them to inventory, wouldn't QB determine the COGS for the item(s) automatically?

QuickBooks Team

Re: Cost of goods sold issues in Profit and Loss Statement

Hello, @reiddg.


You may need to check every inventory item added to QuickBooks to make sure that those have the 3 accounts mentioned by Rustler. If the setup is incorrect, that’s likely the reason why your P&L report shows a negative amount for COGS. 

 

Let’s make the necessary changes by following these steps:

  1. From the Lists menu, select Item List.
  2. Pick the item from the list to open it.
  3. Under the Purchase Information, select Cost of Goods Sold in the COGS Account drop-down.
  4. Select your Income account in the Sales Information section.
  5. Choose an Inventory asset as your Asset Account
  6. Hit OK to record the changes.

Inventory 1.PNG Inventory 2.PNG Inventory 3.PNG

If this isn’t the case, the issue may have something to do with your service items’ posting expense account classified as COGS. Here’s how to verify:

  1. From your Item Lists screen, select a service item.
  2. In the Purchase Information section, instead of COGS as your posting Expense Account, choose an Expense. Take note of the Cost, so you can add it to your inventory assembly.
  3. Once done, hit OK.

Service 1.PNG Service 2.PNG

Take a look at this article for the details: Add, edit, and delete items.

 

I also want to see how the report looks like and the way the items are setup. Any additional information you share will help us get to the solution much quicker. 

 

Please let me know how this goes on your end. Hoping to hear from you again. Take care!

Level 1

Re: Cost of goods sold issues in Profit and Loss Statement

Thank you for your response and advice.  I will verify the current setup and reply back.  I should clarify that the COGS is not negative in the P&L.  The Gross Profit is negative because it appears as though we're somehow double counting the manufacturing costs.  Merchandise sales are just over $71k and the Total COGS is over $93k.  I know we've not spent that much on product manufacturing.

 

I will reply back with my findings.  Thank You.

Level 1

Re: Cost of goods sold issues in Profit and Loss Statement

Hi @KhimG 

 

I reviewed our item list, looked at a few of the items and verified the following:

- Purchase Information COGS account is Cost of Goods Sold

- Income Account is set to Merchandise Sales (correct income account)

- Asset Account is set to Inventory Asset 

 

I'm unclear on your guidance for the second part, though.  You're suggesting I change the Purchase Information from COGS to an expense account.  Not sure which expense account I would select.  All of the product-related accounts (Manufacture, Labels, Shipping) are not defined as Expense but are defined as COGS.

 

Thanks

Level 1

Re: Cost of goods sold issues in Profit and Loss Statement

Did you see my reply regarding your suggestion of altering the purchase information account to an expense account?  I believe the root of the issue is the accounts holding inventory components (product, labels, shipping) are defined as COGS instead of expense, which I believe is incorrectly inflating the COGS section of the P&L.

 

Your thoughts?

QuickBooks Team

Re: Cost of goods sold issues in Profit and Loss Statement

Hi reiddg,

 

 

You can edit the account type of your product-related accounts (Manufacture, Labels, and Shipping) from COGS to expense. Just make sure these accounts have no sub-accounts to do so. Let me guide you how.

  1. Click Lists.
  2. Click Chart of Accounts or press CTRL+A.
  3. Right-click on one of the accounts in question (Manufacture, Labels, and Shipping).
  4. Click Edit Account.
  5. Click the Account Type drop-down, and choose Expense.
  6. Click Save & Close.

You can see the screenshot of steps 3-6 below.

 

Once done, pull up your reports again.

 

I've also added our page about setting up advanced inventory for your reference.

 

Please know that we're always here to help whenever you have questions.

 

 

Level 1

Re: Cost of goods sold issues in Profit and Loss Statement

Thanks!  I'll make the changes and see what my P&L looks like.  If there are subaccounts, I will need to change those as well, correct?

 

 

QuickBooks Team

Re: Cost of goods sold issues in Profit and Loss Statement

Hi reiddg,

 

I've read starting from your first post, and I noticed that your items' accounts and transaction records need to be checked with an accountant.

 

When you receive the items from your co-packer, you also record the cost of sales. Thinking of it, it's right because you're paying your co-packer by that time. In other words, the cost of sales is already realized before the items were sold. Then, by nature, when you sell an item, the Cost of Sales is also realized. So, this doubles the posting of COGS. Check out the article about tracking COGS for your additional reference.

For now, I won't ask you to make changes in your data. I would rather suggest seeking help from an accountant, so they can see your setup, specially the accounts of the items. If they have recommendations, please get back to us and we'll help you enter them.

Lastly, always back up your file before making any changes to it.

Level 1

Re: Cost of goods sold issues in Profit and Loss Statement

Thanks so much for your reply.  I agree with your assessment and we will consult with an accountant.

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