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Level 2

Cost of Goods Sold

The Average Cost of our items are not calculated correctly! How can it be corrected?

 

Thanks

Solved
Best answer 12-21-2018

Accepted Solutions
QuickBooks Team

Re: Cost of Goods Sold

Hello there, @hraissi.

 

Welcome to the Community family. I can help you check why the Average Cost of your items are not calculating correctly.

 

Your Average Cost of the items is affected by the cost of goods in the inventory and the total number of items available for sale. The cost of each item in an inventory is calculated on the basis of the average cost of all similar goods in the inventory.

 

To drill down the cause of your weighted cost miscalculation, your best course of action is to run the Inventory Valuation Summary report. This will provide the quantity and average cost for each item to support the balance on the financial statements once an adjustments have been made.

 

Here's how:

  1. Go to Reports at the top menu bar.
  2. Hover your mouse to Inventory.
  3. Select Inventory Valuation Summary.
  4. Set the dates to all.
  5. Double click the item in question to show Inventory Valuation Detail report. It will populates how QuickBooks derived the item's average cost.

The average cost column is based on the purchases, sales and adjustments made to an item. If the detail does not match the financial statements, the reason is usually the result of one of the following:

  • A transaction was coded directly to the inventory balance on the general ledger, rather than following proper procedures through the enter bills, write checks, create cash sales receipt, create invoice, or inventory valuation process.
  • An inventory item that still has a value but has been marked as inactive.

Typically, discrepancies are the result of a journal entry, or a purchase on a bill or check coded to inventory on the Expense tab, rather than through purchasing an item on the Items tab. Thus, creating a negative inventory 

 

You can use an inventory adjustment to increase or decrease the quantity on hand for a tracked inventory item, or revalue the item. I recommend you consult with your accountant or bookkeeper before making any inventory adjustments.

 

The following article contains more insights in understanding COGS tracking: https://quickbooks.intuit.com/community/Inventory-and-projects/Understand-Inventory-Assets-and-COGS-....

 

This should provide information about your inventory concern. Let me know how things go after following the above steps.. I'll be on the lookout for your reply and to further assisting you if you have other questions. Wishing you and your business continued success. 

View solution in original post

9 Comments
Anonymous
Not applicable

Re: Cost of Goods Sold

This is a common post but it always turns out that QB is right.  The average cost code is very old and stable and always works to my knowledge.

 

The average is always the average cost of the remaining items you have on hand based on your purchases and sales over time, in the order of the purchase and sale transactions by date and order of entry.

Level 2

Re: Cost of Goods Sold

That's what I thought. But it doesn't work like this at all time. For example, we purchased 2 of an item at $120/ea (as a prototype). 4 months later we ordered and received 400 of the same item at $55/each. But the Avg Cost still shows at $120! Not right.

QuickBooks Team

Re: Cost of Goods Sold

Hello there, @hraissi.

 

Welcome to the Community family. I can help you check why the Average Cost of your items are not calculating correctly.

 

Your Average Cost of the items is affected by the cost of goods in the inventory and the total number of items available for sale. The cost of each item in an inventory is calculated on the basis of the average cost of all similar goods in the inventory.

 

To drill down the cause of your weighted cost miscalculation, your best course of action is to run the Inventory Valuation Summary report. This will provide the quantity and average cost for each item to support the balance on the financial statements once an adjustments have been made.

 

Here's how:

  1. Go to Reports at the top menu bar.
  2. Hover your mouse to Inventory.
  3. Select Inventory Valuation Summary.
  4. Set the dates to all.
  5. Double click the item in question to show Inventory Valuation Detail report. It will populates how QuickBooks derived the item's average cost.

The average cost column is based on the purchases, sales and adjustments made to an item. If the detail does not match the financial statements, the reason is usually the result of one of the following:

  • A transaction was coded directly to the inventory balance on the general ledger, rather than following proper procedures through the enter bills, write checks, create cash sales receipt, create invoice, or inventory valuation process.
  • An inventory item that still has a value but has been marked as inactive.

Typically, discrepancies are the result of a journal entry, or a purchase on a bill or check coded to inventory on the Expense tab, rather than through purchasing an item on the Items tab. Thus, creating a negative inventory 

 

You can use an inventory adjustment to increase or decrease the quantity on hand for a tracked inventory item, or revalue the item. I recommend you consult with your accountant or bookkeeper before making any inventory adjustments.

 

The following article contains more insights in understanding COGS tracking: https://quickbooks.intuit.com/community/Inventory-and-projects/Understand-Inventory-Assets-and-COGS-....

 

This should provide information about your inventory concern. Let me know how things go after following the above steps.. I'll be on the lookout for your reply and to further assisting you if you have other questions. Wishing you and your business continued success. 

View solution in original post

Level 2

Re: Cost of Goods Sold

Thank you.

Level 1

Re: Cost of Goods Sold

Hello. I have a question regarding entering item parts. Do I create a new inventory part for every new cost of the same item? I am just setting up a new business and we have items that we purchased at different costs,

QuickBooks Team

Re: Cost of Goods Sold

Good day, @BlissinCT.

 

Thank you for choosing QuickBooks as your accounting partner. I'd be pleased to introduce to you our Advanced Pricing feature.

 

The Price Rules is available in the Enterprise versions. QuickBooks automatically changes the prices of items on sales forms according to rules you set for a customer, item, sales rep, date range, and class.

 

Here's how to turn it on: 

  1. Click Edit.
  2. Choose Preferences.
  3. Go to the Sales & Customers menu.
  4. Choose the Company Preferences tab.
  5. In the Custom Pricing section, select Enable Advanced Pricing.
  6. Select OK.

Here's how to create a price rule:

  1. Click Lists.
  2. Choose Price Rule List.
  3. Right-click on your mouse and choose New.
  4. Enter the necessary information.
  5. Click OK.

For in-depth information, please check the Advanced Pricing article.

 

That's it. Let me know if you have other questions for me. I'm willing to help you more about inventory. Wishing you all the best!

Level 1

Re: Cost of Goods Sold

I'm really just learning about accounting and need to know that if I buy 5 of item A at $10 one day and then 20 of item A at $20 the next month, how do I account for that in my inventory parts list. 

QuickBooks Team

Re: Cost of Goods Sold

Hi there, BlissinCT.

 

The average cost is automatically updated in QuickBooks. When you create a bill, use the same inventory item and update the cost. This will prompt you to update the item record with the new cost.

 

When you run the Inventory Valuation Summary, you'll be able to see the adjusted average cost.

 

Feel free to reach out to us if you have any other questions about QuickBooks. Thanks.

Level 1

Re: Cost of Goods Sold

the COGS are calculating correctly based on what was on the issued PO.

the problem is that the average cost does not account to other items i supply to the manufacture.

i supply labels, install sheets, these items have an inventory number, the average cost in QB does not account for these items.  Is there a way to properly account for all the charges associated with the final item cogs.

example:

part # ABC cost $10.00 from manufacture

ABC components: part # B100 - label cost $0.50 each

                                   part# C100 - install sheet $0.25 each

                     

True COGS of ABC $10.75, QB is recording COGS is $10.00 as this is what is on the PO.

We invoice our customers for part number ABC @ 15.00.

QB is reporting that profit is $5.00 when actual profitability is $4.25.

 

Any help would be greatly appreciated

 

 

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