What is the proper way invoice for non inventory items and have COGS show up on reports?

You set up and use Two Sided Items, per my attached screenshot.

This is how you Buy that item, mark it billable, and charge it to the customer usign Add Time & Costs.

Or just Job Track the Purchase.

Now you have COGS; that is the left side account link.

"I guess I can just enter all non-inventory items that fall under COGS this way.  I suppose non inventory items that are not two sided would only work for expenses, say purchase of office supplies for the business?"

ITEMS are what you make, do, sell, charge, buy, or Buy and Sell. They flow data to accounts, or in and out of them.

They are linked to Income, Expense, Liability, Asset, or Bank. ANY account. Service, Noninventory and Other Charge Types can be Two Sided, because you want to control the separation of the use of the items on Purchase Transactions from the use of the items on Sales transactions.

You use Items for Customer Name related tracking purposes.

Service Type items are the only item that shows on Timesheets, for use there.

For instance, I buy Office Supplies for Myself AND a client:

Supplies as Noninventory item; expense side is my Office Supplies expense account. Revenue side is Reimbursed Costs income account.

Expenses tab = my office supplies, posting to my Account, directly. No item used here.

Click on...

Items tab = list Customer Purchases and Job Track (assign names). Mark them Billable, or NOT, if not to be charged to the customer.

Total of check = Both Tabs.

Now my Expense account has ALL of this, but Item reports and Job report show only the Customer Activities. My Income account has the charged-back costs, for Reimbursed as income.

Please see my screenshot, attached. Notice the Exact Match for the data.

"Here's the scenario - I create a new non-inventory item for a generic part, say a laptop screen,"

Perfect; put details in the description. Don't micro-manage Items for various sizes of Hard-drives, for example.

"I do not check the box for "this item used in assemblies or purchased for a specific customer" "

But you DID buy it as needed, for a specific customer. It is not generic Stock on hand.

"and I leave the price empty since it will vary from screen to screen"

Help tells you if Cost varies, leave it as 0. Leave Price at 0, and a two sided item will pass across cost at cost, for Billable entries.

"and I assign it to the Purchases - Hardware for Resale - Cost of Goods Sold account.  Then I go to Vendors, Enter Bill, and I purchase the item for $35.46."

Sure, if you have not yet paid for it.

"I then create an invoice, charging $60 labor and add the item to the invoice,"

On the Bill, put the customer name and mark it BILLABLE. Then, use the Add Time & Costs icon = here is that entry from the bill.

The point is, this is a relational database. Put in the data once, and make it available to all of the other functions. Do not manually enter on a Bill AND manually enter on the invoice. Too much manual entry. And, by using Billable status, you won't overlook charging out something you incurred.

"charging the customer $45 for the item."

Oh, you DO want a markup, then?

"Then I receive payment for the invoice"

OMG, you are doing So Much Extra work, and so many extra steps...You use Invoice because you have not yet been paid. The Payment is at a later date = two steps. Otherwise, you use Sales Receipt = One Step = date of sale IS date of payment.

"and run a P&L.  My P&L now shows consulting income of $60, and reports COGS under the category "Purchases - Hardware for Resale" where it reports a Bill in the amount of $35.46 applied to Accounts Payable and an Invoice for the item under Accounts Receivable for -$45.  This results in it reporting Total Purchases - Hardware for Resale as -$9.54 and Total COGS as -$9.45."

Yes, that is called Netting In The Accounts and is a set up error reflecting an Item was used for Both Purchase and Sales purposes. You FIX the item and QB offers to Separate the data for you. Let it Split that data for you.

"but unless I'm misunderstanding how COGS works shouldn't the COGS value be $105.45, my actual cost for the two parts, with $39.54 being my profit from what I have sold?"

You want to see GROSS as Income, and Gross as Expense = All data is tracked as Gross.

Fix the items.

And try not to use so many steps.

For instance, Enter Bill is NOT needed, if you already Paid by Credit Card. Go directly to Enter Credit Card Charge.

Similarly, we have a body shop with no inventory. Unfortunately, when we invoice a customer, the parts purchased for the specific job, are being credited to the Parts Purchase expense account from Accounts Receivable and reducing the parts expense?

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Hi there, GTO.

Thank you for joining this thread. I can help you properly set up non-inventory items to show under COGS and so they are not credited to the Parts Purchase expense.

The posting account of the item on an invoice depends on its setup. If you wish to change the accounts, here's how:

1. Click Lists.
2. Choose Item List.
3. Look for the non-inventory item and double-click it.
4. Put a check mark on the This item is used in assemblies or is purchased for a specific customer:job box.
5. Update the accounts fields.
6. Click OK to save changes.

That should help you correct the setup of your items, GTO. For more information about items, you can use this link as a reference: Add, edit, and delete items.

I'm still here to help you more if you have other questions about items. Just drop a comment or mention my name. Have a wonderful day!

Quickbook Team. We have a similar issue as to compared to the bodyshop with not keeping inventory but do have job specific product purchases. The screen you have shown is nowhere in our system. I assume that is a QB Desktop program. Would you be able to give more details as to how this can be done in QBOnline?

Thanks for joining this thread, MDSonline.

I can provide the steps for changing the posting account attached to the items for the QuickBooks Online (QBO) version.

1. Click the Sales menu.
2. Choose Products and Services.
3. Look for the item.
4. Click the Edit link under the Action column.
5. Update the posting accounts of the item.
6. Click Save and close.

For in-depth information, you can use these links as a reference: 

• How to change the account for a product/service item
• How to create and use a products and services list
• Set up categories in Products and Services

That should keep you going today, MDSonline. I'm still here to help you more about products and services. Just add a comment below. Wishing you all the best!

We have non-inventory COGS service items that are ordered for customers and then invoiced to the customer(s).   We receive the bill from the vendor and pay for the service. We then create an invoice to the customer but we have been using a different item so the two things don't immediately reconcile and it appears on the P and L like we have all this revenue that isn't revenue its actually just paying for the COG. How should the item to be used on the customer invoice be set up as its not really income 

Can you help? We have non-inventory COGS service items that are ordered for customers and then invoiced to the customer(s).   We receive the bill from the vendor and pay for the service. We then create an invoice to the customer but we have been using a different item so the two things don't immediately reconcile and it appears on the P and L like we have all this revenue that isn't revenue its actually just paying for the COG. How should the item to be used on the customer invoice be set up as its not really income 

I can help you fix this, Ilove2ski.

To reconcile those transaction, we'll have to use the same item. The program will not reconcile it unless we're using the same non-inventory COGS service item. We can go back to the invoice then edit it. I'll guide you how:

1. Click the Magnifying glass icon.
2. Locate the invoice from the RECENT TRANSACTIONS section.
3. Under the PRODUCT/SERVICE column of the invoice, select the appropriate service item.
4. Click Save.
5. Select Continue to confirm the changes.

Then, we'll have to turn off billable expense tracking feature the Account and Setting so that it will not be shown as income in your Profit and Loss Report.

1. Click the Gear ⚙ icon.
2. Select Account and Settings.
3. Go to the Expenses tab.
4. From the Bills and expenses section, click the Edit ✎ icon.
5. Uncheck the Track billable expenses and items as income option.
6. Hit Save.

I've added articles that will help you track where your business is standing in terms of expenses: Run a report with vendor totals.

Feel free to shoot comments below if you have any other concerns or questions about billable expenses. I'm always glad to help in any way I can.

Hello, How do i do exactly this in quickbooks desktop?

Hi there, radauto.

Welcome back to QuickBooks Community, radauto. I'll share steps to ensure you're able to perform the instructions shared above using the QuickBooks Desktop version.

As mentioned above, you'll have to use the same item when creating transactions for vendors and customers. The system will not reconcile your entries unless you're using the same non-inventory COGS service item. That said, the item that you've used when creating and sending an invoice should change or you'll have to make sure that it's assigned as a service item and post it to the correct account. This way, the entry won't appear as income. To start with, I suggest going to the customer's information and locate the invoice entry and make any changes if necessary.

Here's how:

1. Click the Customers meu at the top.
2. Choose Customer Center.
3. Find or select the customer's name. 
4. Locate the invoice and double-click the entry.
5. Go to the Item column and change the product item to service item type.
6. Hit Save and close.

Once done, you'll have the option to turn off the billable expense tracking feature to ensure that the service transactions will not be shown as income in reports. Please follow the steps below.

1. Go to the Edit menu and select Preferences.
2. Choose Time & Expenses on the left-side panel.
3. Click the Company Preferences tab.
4. Make sure to uncheck the Mark all time entries as billable and Mark all expenses as billable box.
5. Hit OK.

Please refer to this article to see detailed information on how you can reconcile your accounts so they match your bank and credit card statements in QBDT: Reconcile an account in QuickBooks Desktop.

Please let me know how everything goes in the comments. I'm always here should you need anything else. Take care.

We were having a similar issue and I have never understood what Quick Books (Enterprise) expected to enter for an account when adding a non-inventory item if you do not check the box "This item is used in assemblies or is purchased for a specific customer:job". 

Is the account supposed to be an income account or an expense/cogs account? 

MR