Should I use COGS when buying construction material?

Forum|Forum|7 years ago
October 16, 2018
2 replies
19 views

I know this questions been asked many times, and there's always multiple answers. I usually see COGS recommended first because how well it works in P&L. But then I see people mention that when you do taxes, COGS requires a bit more work.

We flips houses. Our contractors go and buy materials from home improvement stores to take to the jobsite and use immediately. I've set that up as an double sided non-inventory item. When choosing the expense accounts should I use COGS?

Ultimately, the decision comes down to what is satisfactory for tax time but also works well for P&L as well. So

Is COGS the best choice for expense acct or do you recommend a different expense acct for materials?
If so is it as efficient as using COGS?

THANKS!

QuickBooks Online

Best answer by Raywhite28

You should get the contractors guide to QuickBooks. There's information there on spec homes.

This is how I understand it. You buy the home for price "A". You do renovations labor & material at cost "B". You price of the home is now "C", which A+B. Your COGS gets recorded when you sell the home. Technically, the home is inventory until you sell it. Again this is my understanding.

You should discuss it with your accountant. They should be able to advise you better.

Raywhite28Answer

Level 6

You should get the contractors guide to QuickBooks. There's information there on spec homes.

This is how I understand it. You buy the home for price "A". You do renovations labor & material at cost "B". You price of the home is now "C", which A+B. Your COGS gets recorded when you sell the home. Technically, the home is inventory until you sell it. Again this is my understanding.

You should discuss it with your accountant. They should be able to advise you better.

qbteachmt

Level 11

"We flips houses. Our contractors go and buy materials from home improvement stores to take to the jobsite and use immediately. I've set that up as an double sided non-inventory item. When choosing the expense accounts should I use COGS? "

That is Other Asset for you. Think of this as Invested in the project. You have nearly No Expenses or COGS, while Flipping property.

Your Items can be marked Not as reimbursed, single-sided and link to Other Current Asset, until the project is complete.

When it is complete, that is an inventory asset on hand, waiting to sell.

When it sells, for the date of the sale the total invested is then Offset to COGS, because now, it Sold.

A

Anonymous

I work for a construction company as a bookkeeper. When we buy materials for the project, for example, tiles for $1500, I record $1500 as COGS for the project. But is it supposed to be inventory first then, later do journal entry to move from inventory to COGS?

AlcaeusF

Level 14

Thanks for the quick answer. Ok, I don't need to do journal entry. How about the first part that I mentioned, is it correct for $1500 put into CODS directly?

Thanks for getting back to us, @544926.

Allow me to step in for a moment and share some additional information about inventory and COGS in QuickBooks Online (QBO).

Yes, you can record the materials you bought as COGS. QuickBooks will automatically calculates the COGS amounts upon the sale of your items. However, you may also consult with your accountant for further assistance. They can provide expert legal and accounting advice on how to properly account this, so it does not throw off your financial records.

This should answer your concern. You can always check out the articles provided by my colleague @HoneyLynn_G above for future reference.

Please let me know if you have any follow-up questions in the comment section. I'm always here to answer them. Take care and have a good one.

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