COGS Default with a Service cash based LLC

lmancini220 · ‎June 07, 2020

Hi there!

I am having a debate with a tax preper about using the cost of goods sold for a landscaping company - the tax preper wants all job supplies to be categorized under "expenses - job supplies" because the client does not take inventory of these things (they are simple things like bags of fertilizer, shoevels, etc).

However it seems like QB is suggesting all of that goes into COGS and it is confusing to not be able to delete this account...Can someone explain why QB wants you to keep the COGS account even if you don't count inventory as a service business?

What is also confusing to me is when I download the industry specific chart of accounts, if you select "general - service industry" COGS is not in there..but if you select landscaping it is..

vpcontroller · ‎June 07, 2020

@lmancini220

It's a good debate to have whether to choose as COS (COGS) or as Operating Expense for Job supplies.

Both are acceptable. The question is how would you like to see the Profit and Loss report, helpful for running your business.

Do you need to see Gross Margin on Sales (you can google what that means) or not? Is that meaning data for business or not? If so, you can code as Cost of Sales (COS) for job supplies, material, or related direct costs to generate your sales income. Note: In QBO, you can change the Cost of Goods (COGS) account type in the Chart of Accounts. But they've newly added the "Edit Titles" feature. Now you can change it Cost of Sales if you want to run the report. See the screenshot below for reference.

I hope this helps!

View solution in original post

vpcontroller · ‎June 07, 2020

@lmancini220

It's a good debate to have whether to choose as COS (COGS) or as Operating Expense for Job supplies.

Both are acceptable. The question is how would you like to see the Profit and Loss report, helpful for running your business.

Do you need to see Gross Margin on Sales (you can google what that means) or not? Is that meaning data for business or not? If so, you can code as Cost of Sales (COS) for job supplies, material, or related direct costs to generate your sales income. Note: In QBO, you can change the Cost of Goods (COGS) account type in the Chart of Accounts. But they've newly added the "Edit Titles" feature. Now you can change it Cost of Sales if you want to run the report. See the screenshot below for reference.

I hope this helps!

MirriamM · ‎June 07, 2020

Welcome to the Community forum, @lmancini220.

Thanks for providing detailed information about your concern. It was super helpful, and I feel like we are on the same page.

Chart of Accounts (COA) is a listing of the categories that QuickBooks uses to summarize money movement for your company’s financial statements. And there are default accounts that the system creates automatically, this includes the Cost of Goods Sold (COGS). The COGS account has no way to delete or use it for any other purpose. Since if you try, any edits to Products/Services will recreate them.

As for your other concern, in QuickBooks when you create a company file and chooses a type of company, this will help determine the COA that the system will create for you. Thus, COGS is available for the Landscaping Industry and not on General Service. Moreover, based on this question, it appears that you're using QuickBooks Desktop in which you've chosen QuickBooks Online as your product when posting in the Community.

I know that most service companies don't have any COGS. In the generally accepted accounting principles (GAAP), COGS is not addressed in any detail but is defined as only the cost of inventory items sold during a given period. If COGS is not listed on the income statement, then, no deduction can be applied for that cost.

For more information about this, take a look below articles which you may find helpful:

Reach back out to me by commenting below if you have any questions concerning QuickBooks. I'm always here to help. Have a great day!

lmancini220 · ‎June 07, 2020

Thanks for the response!

I am using online - it is possible that I downloaded a list of industry specific COAs for desktop on accident..

If the COGS will auto create with any edits to Products/Services, won't it auto create in an account that uses the "General -Services" COA? If so, why wouldn't it just be in there to start?

lmancini220 · ‎June 07, 2020

Thanks!!

Pretty much what I was figuring - I think to simplify things we will skip using COGS and use different job supplies expense accounts - the different categories of job supplies plus expense vs revenue will be good enough for a good picture of what is going on..

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COGS Default with a Service cash based LLC