Whats the difference in cost of goods sold versus regular expenses

Assuming the molds would last more than a year, they would be a Fixed Asset and would be depreciated as such.

I sell tools but I don’t keep them in inventory if a tool sells on my website I email the manufacture and they ship the tool for me.  So for example I sell the tool for 300 and I pay 260 for it.  I have been putting down 260 as cost of good sold.  But I am not sure if I am doing it correctly since I never physically see the tool.  How do I need to label this in my expense report?

@bacalee 

You are a classic case of dropshipping.  You should not use COGS for the cost of the tool when dropshipping.  COGS is only to be used when you sell items that you have put into your own inventory.  Record the $260 cost of the tool as a selling expense or something similar. 

I am also curious about this. 

We build custom sets and exhibits.  Would TV's be considered a COGS or materials?

For example, we built a set with multiple monitors included in the deliverables. Since the monitors were part of the build out/set we installed, I currently have it categorized as job supplies/materials. This kind of thing happens all the time and I'm not sure if it's being categorized correctly.

@chelsea15 

Technically, if you re-sell a product, it should be put into inventory and not recorded as job supplies.  You don't book the purchase of items for resale directly to COGS when purchased.  The purchase should be recorded as inventory first, then to COGS when sold to your customer. The reason for this is that items purchased for resale are not an expense to your business until you sell them to your customer.  It's what's known in accounting as the matching principle - matching your business expenses to the same period as the income those expenses produce.  Think of it this way, let's say your company found a great deal on TVs this week and decided to buy $50K worth.  If you record that purchase as job supplies, you will be deducting $50K from your income in 2022, but the income from those TVs won't happen until a future tax year.  Therefore, depending on your business structure and taxable income, recording the purchase as job supplies, instead of inventory, may save you up to $18,500 in federal income tax in 2022.  If you had properly recorded it as inventory, you would not get the deduction in 2022, you would get it as COGS when you sell the TVs to your customers in the future.  If, however, you purchased the TVs in January and sold them all to your customers in the same year, your net income would be the same regardless if you record the purchase as job supplies or the items are put into inventory and expensed to COGS when sold.  It's when you buy them in one tax year and sell them in a subsequent tax year that there's a mismatch between income and expenses and why accrual accounting is required.

This is why the IRS requires businesses where inventory is an income-producing factor, to use accrual basis accounting.  There is an exception for Small Business Taxpayers, but that exception is not universally agreed upon in terms of whether you can treat your inventory as non-incidental material and supplies, thereby deducting the cost of inventory when purchased.  It's a good idea to check with your CPA to confirm you are recording the purchase of inventory properly.

Would you happen to know anything about my situation with this?

I run a small mushroom farm, where we grow fresh mushrooms indoor using bags of sawdust. I'm having a hard time categorizing my expenses. What would be considered COGS in my situation? I sell only the mushrooms to the customer so would none of my expense be considered COGS? I'm sure it's similar to other crop farming practices. Any input would be appreciated! 

I am trying to figure out how to label parts we get from a manufacturer. We do electronics repair and get our parts from a manufacturer and then charge the customer the cost of the part plus labor. We have our labor listed as service income but i cant figure out if I should list the phone parts as COGS or Supplies expense. Any help would be greatly appreciated! 

I am also trying to figure this one out for our company.  We are a service provider, primarily prune and remove trees.  Occasionally we buy trees and dirt to plant, and I assume this would be COGS.  We have a lot of expenses related to small equipment like chains for saws, ropes for climbing, bar oil for chainsaws. I assume this would be COGS Supplies, but not sure.  Then we also have expenses related to maintaining our larger equipment, like parts and labor for repairs to our loaders, woodchippers, trailers.  I assume this would be COGS Equipment, but also not sure.  

If anyone has any thoughts, I'd appreciate the help.

Thanks.

When you buy the trees and dirt to plant the trees, are you selling them the trees?  I assume so.  Then your cost of the trees you sell this customer would be COGS for the trees you sell.  If you are also have a line item for the dirt, then I think the dirt too could be considered COGS.  But you can only have a COGS for the dirt volume you actually sold them.  If you have dirt in inventory at $2 per cu ft and a tree took 3 cu ft and if you had a line item on the invoice of 3 cu ft of dirt at $3 per cu ft.  Then your Sales Revenue on this item would be $9 and the COGS would be $6.  However if you are not selling the dirt and it is an expense for the installation of the trees then it would be an expense of doing business.  The other items you mention unless they are sold with the trees are NOT COGS they are business expenses.

Also any COGS would only apply when you are SELLING the trees.  When you are doing you other services you mentioned (pruning or tree removal) you are not selling anything.  So you are providing a service.  In that case there is not Sales Revenue and not COGS, it is all Service Revenue and Business Expense.  You could categorize the expenses are Repair Expense, Equipment (Which you may need to depreciate to spread out the expense over several periods) or Supplies Expense etc.  

My dad owns a small construction business. I am not sure how to list his materials. He bids jobs, if the customer is is happy they pay for a portion of the job upfront. He then uses that money to buy their materials for the job to be completed. He buys his own nails, screws, rags, etc. I understand that those need to be categorized as an expense to him. I am unsure how to list to others, if it would classify as a COGS or not?

I am having a hard time how to categorize the materials that are used on jobs. I work for a contraction business and the materials are often bought within the bid price and used for the job. How do I classify those materials?  The rags, tape, nails, screws, masks and the like are expenses, job supplies.