Is there any point to using COGS if you're not selling inventory items? Should you just track expnenses instead?

Anonymous · ‎January 04, 2020

(I hope this isn't a double- post; it looks like my last version got deleted).

I’m sorry in advance for this complicated question(s), but QuickBooks can be pretty complicated, with all of its hidden features, detail types, cost classes, product categories, and so on.

I am currently set up on both Online and Desktop to decide which I prefer. I’ve decided on Online and will ditch desktop.

This question has to do with the purpose of COGS if you’re not tracking inventory. It comes from a discussion I had here:

https://quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/re-hi-i-need-help-with-the-...

To summarize, my company is a farm that raises hogs, takes them to a butcher, pays the butcher to process them into retail cuts, and then has those retail cuts hauled to our end customers (grocery stores). Our customers do not buy hogs; they by individual retail cuts and are invoiced for individual retail cuts.

Therefore, we never take inventory – or have a need to take inventory – of the retail cuts. We do take inventory of the hogs as Inventory Assets. So I have three questions.

1. In QuickBooks Online, is there a way to set up an automatic deduction from the Inventory Asset (Hogs) account when I sell the cuts? I’m told that, in Desktop, I have to do it manually with a journal entry. That makes sense; will it be the same with Online?

2. Since I’m not selling inventory, is there really any point to putting expenses under cost of goods sold? It seems like COGS is only useful when you pair it with inventory items. The expenses I have direcctly attributable to the hog operation (we grow and sell other things as well), include feed, bedding, medicine, etc. Why not account for these as Expenses?

3. How to the QuickBooks features "Product Categories" and "Classes" play into all of this? Are they of any help?

At the end of the day, I would like to be able to look at each piece of my entire farming operation (in this case, pigs), and have QB calculate for me what my profit and loss if for a particular enterprise.

Thanks. Again, sorry for the long post.

Anonymous · ‎January 07, 2020

@Rustler Getting back to this, the livestock I carry are “other current assets” under QBO detail type.

I note you say “never ever” use a journal entry for inventory. Is that the case for other current assets?

In any event, say I pay 100 bucks for a weaned hog. I add that amount to my other current assets account for hogs.

When I take the hog to the butcher to have him processed into cuts, don’t I debit the 100 bucks from the Hogs account and credit the appropriate COGS account since I’m converting the asset into cuts that I’m then selling?

View solution in original post

Rustler · ‎January 04, 2020

in desktop or in QBO you never ever use a journal entry for inventory.

COGS, when you file taxes is associated with retail inventory costs.
If I was you I would create a COGS type account called COS, Cost of sales.

You need IRS pub 225, that has special rules for farmers and ranchers dealing with livestock and crops.

Class (and location in QBO), is a way to tag a transaction for reporting, nothing more than that

Categories in the products & services menu is just for organizing the list

Detail type only exists in QBO, it is something intuit invented that is supposed to make it easier for non accounting types, it does just the opposite in reality

a non partisan comparison of QBO vs QB desktop
http://onsale-apparel.com/Rustler/qbo-or-qbdt
(cost comparisons are at the end of the article)

Anonymous · ‎January 04, 2020

Yes. I’m good to go on IRS Pub. 225. Thanks.

So it sounds like you’re saying I shouldn’t use COGS if I’m selling under the scenario I described above? Your view (“Cost of Sale”), sounds like an expense category (with sub categories) correct?

Anonymous · ‎January 07, 2020

@Rustler Getting back to this, the livestock I carry are “other current assets” under QBO detail type.

I note you say “never ever” use a journal entry for inventory. Is that the case for other current assets?

In any event, say I pay 100 bucks for a weaned hog. I add that amount to my other current assets account for hogs.

When I take the hog to the butcher to have him processed into cuts, don’t I debit the 100 bucks from the Hogs account and credit the appropriate COGS account since I’m converting the asset into cuts that I’m then selling?

Anonymous · ‎January 08, 2020

Resolved through a conversation with a bookkeeper.

PBKPG2020 · ‎October 06, 2020

Yay for bookkeepers!! ;)

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Is there any point to using COGS if you're not selling inventory items? Should you just track expnenses instead?