Tracking COGS of Non-Inventory Items

mac999 · ‎September 20, 2024

Our company is a distributor of building products (doors, cabinetry, millwork, windows, etc) using QB Enterprise (Desktop) General Business version. We use inventory items and non-inventory items. Tracking COGS for non-inventory items has been a challenge. The doors, cabinetry, and windows we order from manufacturers are all different for each order with different qualities and costs, so we use generic item names for each category ( ie: all doors use item name: DOOR). When the vendor bill is received, it would go directly into COGS. But we may not invoice our customer until the following month. That means we have COGS in one month, and the revenue in another which results in incorrect reporting.

For the last 8 years, we changed that so when a vendor bill is received, those cost values go into a current asset account (like what an inventory item does) and when it comes time to invoice our customer, we then manually move those costs from the asset account into COGS to get accurate reporting in any given month. That process works, but when you are nearing a thousand of these per month, it gets tedious and it's easy to make a mistake or miss one of them. I have to compare a sales report of the month against a report of the corresponding asset account and find the specific item. After they're moved to COGS, I then have to reconcile the asset account to clear them out so they don't show up again on next month's report.

We are getting ready to re-create those non-inventory items as inventory items. But we can't use the same item for every door, because average costing will not work, nor would FIFO. So we'll need to create a new inventory item for each door - or for at least each order or job (ie: item name will be "DOOR-<sales order#>"). My problem with this, is that there will be a TON of new items being made by sales people and they'll have to ensure they're choosing the right asset/COGS/revenue accounts when making these items. I can already see the mistakes coming.

There needs to be a better way.

We have explored using the non-inventory items as billable expenses, but doing that duplicates the items on the invoices we make because we create our invoices from sales orders which already have the items on them with pricing. And we must have our sales orders for fulfilling orders in our warehouse.

Does anyone have any other methods they use?

I wish we could use billable expenses without those items being duplicated on the invoice when they're already on it from the sales order.

MirriamM · ‎September 20, 2024

I can see the challenges you're facing when tracking the Cost of Good Sold for non-inventory items in QuickBooks Desktop (QBDT), mac999.

Typically, the COGS is only impacted when you sell inventory items on invoices or sales receipts, allowing for accurate tracking of associated costs and gross profits. Consequently, non-inventory items are recorded in your Profit & Loss statement upon purchase or invoicing, provided that the purchase information is properly set up in QuickBooks.

To ensure accurate reporting without the need to create numerous new inventory items, could you please elaborate on how you've set up the non-inventory items where it affects the COGS once a vendor bill is received? We'd appreciate it if you could also add screenshots to get more details on what's happening.

Moreover, you may want to consider seeking advice from your accountant to explore alternative solutions or best practices tailored to your specific business requirements. Their expertise and experience with similar challenges could provide valuable insights and recommendations.

For more details on handling your items in QBDT, you can check out these articles:

Feel free to post a reply if you need anything else or if you have further questions, mac999. We'll get back to you.

mac999 · ‎September 20, 2024

Hi MirriamM, thank you for the reply. So, currently when non-inventory items are received, they do not affect COGS. Instead, I have them go into a current asset account (see image below) that we call WIP accounts. All non-inventory items will sit in those asset accounts until our customer is invoiced for the non-inventory item. To move the items from asset to COGS, I first download to excel a detailed sales report at the end of each month of every single non-inventory item we sell for that month. That report is compared to a quick-report of each asset account that contains the non-inventory items - also downloaded to excel. I look for matching customer/job names and descriptions or tag# to match them up between the reports, highlight the ones I find, use sum-functions in excel to get my total cost of doors, windows, cabinetry, etc for that month based off of what we sold (see other attached image). Then I make a journal entry to move those values from the asset account to COGS. Finally, I reconcile the asset accounts to clear the non-inventory items that have now been moved to COGS so they don't continue to show up on the quick report. I'm basically just manually doing the same thing as what an inventory item does automatically. This method works, but it's not hard to make a mistake and it is time-consuming.

We have spoke with our tax accountants and they have suggested creating these new items as inventory items. I agree that it is a more accurate way to get the right COGS in at the right time, but yes, we're talking about a lot of items being created.

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