Purchase product and resell it is this a expense account or a cost of goods sold account?

Nice question, cbutter06.

When you purchase a product, your Bill, Check, or Credit Card Charge will not debit to an expense account because it is an asset that you can sell.

When you sell inventory items on invoices and sales receipts, that's the time it affects the Cost of Goods Sold (COGS).

To confirm this, you can run the Transaction Journal Report for the invoice/sales receipt. From there you'll see the Sales/Accounts Receivable transaction and the Inventory/COGS transactions which credit the Inventory Asset account and debit the COGS accounts.

Here's how:

1. Go to Reports and enter Transaction Journal Report in the search bar.
2. Filter the necessary information.
3. Click Run report.

Here's an article about tracking inventory that you might find helpful: Manually track inventory.

I also suggest consulting with a certified accountant or bookkeeper to  make sure you're using the correct accounts.

For more information about managing inventory, check out the following articles:

• Understanding Profit & Loss Statement: Income, Cost of Goods
• Inventory management.
• Use reports to see your sales and inventory status.
  
  

I'll be right here if you have further questions while working with inventory COGS. Keep safe and have a good one.

Hi, cbutter06.

Hope you’re doing great. I wanted to see how everything is going about what account to use for the purchased product and resell you had the other day. Was it resolved? Do you need any additional help or clarification? If you do, just let me know. I’d be happy to help you at any time.

Looking forward to your reply. Have a pleasant day ahead!

Hi, my question is similar.   In quickbooks desktop pro:  When purchasing a product (non-inventory) for a particular customer and using the "billable customer field when the bill is paid,  Then creating the invoice recalling the item purchased,  I can't get the profit and loss to show the cost of goods without the invoices getting into that category.  It shows both expenses (actually cost of goods) and the income in a negative for the details in the report.  

Hi there, laura55.

Let me share additional information on how COGS works in QuickBooks.

Please know that the Cost of Goods Sold account is only affected when you sell inventory items on invoices or sales receipts. Once you sell an inventory item, you'll notice that the inventory transaction credits the Inventory Asset account and debits the COGS accounts.

On the other hand, the non-inventory parts are the goods you buy but you don't track, like materials for specific jobs that you charge back to your customers. They don't directly affect the COGS account.

For these items, the cost is recognized as you purchase the item by including it on a purchase transaction, such as a bill or check. Additionally, you will only see the cost of your non-Inventory items on your Profit & Loss statement after they have been sold.

I'm adding these articles to help track and manage your inventories in QuickBooks Desktop:

• Understand inventory assets and cost of goods sold tracking

• Customize item reports

Do you have any other questions in mind? Feel free to leave them below and I'll get back to you as soon as I can.

I'm interested about this piece of your response:

On the other hand, the non-inventory parts are the goods you buy but you don't track, like materials for specific jobs that you charge back to your customers. They don't directly affect the COGS account.

My question is how do you categorize the non inventory part when you purchase it? Is it an expense or does it belong in a different category?

I own a small farm and purchase feed for my chickens and pigs. This would be an expense on my Schedule F.

However, I also buy the same feed and resell to local farms for a slight profit. This would be income on my Schedule F.

My question is - how can I set up QB feed items to be an expense for my farm and income for what I sell to other farms? I.E. is it possible to use QB invoice for feed sold and a different transaction (as an expense) for feed used on my farm? And still maintain inventory control plusses & minuses?

Thanks,

Ben

Hello, Ben. 

I hope you had a bountiful harvest (and hoping for more this year!). I'd like to take a moment to help you set up the sale and purchase of the animal feed in QuickBooks. 

Yes, it's possible to use the Invoicing function to sell the feed. On the other hand, we can also use the Expense function to purchase the same feed from your suppliers. 

Now, let's first take care of how we can set up the feed item. We'll want to add it as an inventory item to keep track of it. Here's how: 

1. Go to the Gear icon, then select Products and services. 
2. Click the New button. 
3. Set the Type as Inventory. 
4. Fill out the needed information for the feed. 
5. Select the asset account under Inventory asset account. 
6. Add the Income account (mapped for Schedule F). 
7. Once done, click Save and close.

As for the Expense account field, we could use the Cost of Goods Sold account. However, we would also want to take a look at how this impacts your Schedule F form. 

I would recommend consulting an accountant to ensure your tax mapping on income and purchases are correct. 

I thought I should also add this but QuickBooks doesn't actually do unit of measure when it comes to buying and selling items. If you sell feeds by sack quantity, then we'll simply want to use the Quantity field (on invoice and expense forms).

Otherwise if you sell it by kilogram, then we'll want to manually calculate it as we fill out the forms. Alternatively, we can look for a third-party app to let us do this. 

After setting up the item, we'll want to ready the entries. Simply click the + New button then select Expense (if you want to buy the feed and add the quantity) or Invoice (if you want to sell the feed). 

We'll want to make sure to add the inventory item under the Item details section (on the Expense form) or under the Product/Service column (for invoices). 

Aside from using the regular invoice and expense forms, another option for us is to use the Billable expense workflow. If this works for you, I'd recommend checking out this article for more details: Enter billable expenses. 

After recording those entries for the feed purchase and sales, I'm sure you'll also want to check out how they impact your financials. We can use reports to do this. We have a guide that'll help us utilize the Reports feature: Run reports in QuickBooks Online. 

You're more than welcome to drop by here if you have other questions about setting up an item in QuickBooks. I would also like to cover other things like banking and reports if you have concerns about those areas. I'll see you again soon! 

I have a related question. I am also a farmer. I organized a bulk purchase of soil for a few farms. The purchase required pre-payment so I made the whole payment with my credit card (for my portion as well as the other farms' portion). I am not reselling for a profit. However, because I had to pre-pay the other farms made their checks out to me. 

Here's a basic summary of the situation:

I have a credit card charge for $4000

I have 3 checks for $1000 each, made out to my business

I have $1000 of expense for my portion of the soil.

How do I enter the checks to cancel the credit card charge of $3000 without entering the $4000 as an expense and $3000 as a sale? 

Thank you so much!

@stellarjay 

First, create an other current asset account called 'Due From Farmers' or something similar.  When you record the $4K credit card charge, record the $1K expense for your soil and then assign the remaining $3K to the newly-created 'Due From Farmers' asset account.  Then, when you deposit the $3K in checks, assign the same 'Due From Farmers' asset account to the deposit.  That will book your $1K expense and keep the rest off your P&L and there will still be a record of the transactions so you can reconcile your accounts.  

Hello,

How do I log used auto parts that I will resale for my business?