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Jackeray
Level 1

QBO Subscriptions, COGS or Expense

Are QBO subscriptions to my firm for my clients cost of goods sold or an expense? How would you suggest categorizing these?

 

Also, when setting each level of subscription up, am I correct that it should be as non-inventory products that I sell to my clients? An exhaustive answer is welcomed. I want to ensure I have a thorough understanding of setting it up correctly. Income and expense accounts that should be used also. 

All help appreciated!

6 Comments 6
Rustler
Level 15

QBO Subscriptions, COGS or Expense

It is an expense, and not COGS

I would use a service item for subscriptions that I sell

PlumBookkeeperCO
Level 4

QBO Subscriptions, COGS or Expense

I have mine (perhaps incorrectly) set up as COGS... I'd rather not inflate my income line with subscriptions my clients pay me for when I make little to nothing from them directly.   

 

Does anyone have definitive 'how to' on this?   I set up the subscriptions like anything else I would wholesale as an item (service in this case since there's no sales tax) with a cost and have it mapped to COGS accounts. 

No?  Or?

JessT
Moderator

QBO Subscriptions, COGS or Expense

Hi PlumBookkeeperCO,

 

Based on our accounting terms, COGS is used to account for the expense incurred for the items you sell. I would recommend reaching out to an accounting professional who is licensed to provide accounting advice.

 

You can also check out the article about accounting terms for your additional reference. This provides information about the common account types and their uses.

 

Let me know if you have any other questions in mind. Take care and have a good one!

PlumBookkeeperCO
Level 4

QBO Subscriptions, COGS or Expense

Thanks, but um since I BUY QBO subscriptions from Intuit and SELL them on my invoices it seemed like COGS was the right way to account for it, even though the traditional "inventory" doesn't apply as it's an app subscription.  In my books I have the various subscription levels and payroll etc. set up as non-inventory product that I purchase from Intuit with the cost for each one.

 

I was asking here for how others do it, not necessarily for formal accounting practices though if anyone has those, I'll take them.

 

At the end of the day, it might possibly make no difference but I was concerned to make sure I wasn't inflating my income and then not being able to deduct all the expenses for some reason.  Tax code is not my thing!

So going the route of a non-inventory product defined as a cost of goods seemed like a better option, but I could be wrong.

 

 

Rainflurry
Level 13

QBO Subscriptions, COGS or Expense

@PlumBookkeeperCO 

 

Whether you book your QBO as COGS or an expense, there is no difference in terms of net (taxable) income except COGS is an expense that applies only to businesses that carry inventory.  You charge your customer for the subscription (gross income) and reduce it by the cost of your subscriptions (expense) and you're left with net income.  I agree that it should be an expense and not COGS, but the net effect is the same either way.   

PlumBookkeeperCO
Level 4

QBO Subscriptions, COGS or Expense

Thanks!  I appreciate the response.

Originally I had it set up as an income line and then an offsetting expense as you described but someone else told me to go the COGS route saying buying wholesale subscriptions and selling them to clients was not much different than buying a widget and selling that.  Anyway, I was curious what others were doing, and what the 'correct' way is.

 

Thanks!

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