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lindak1119
Level 7
October 16, 2018
Solved

Should I use COGS when buying construction material?

  • October 16, 2018
  • 2 replies
  • 13 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!

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.

2 replies

Raywhite28
Raywhite28Answer
Level 6
October 16, 2018

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
qbteachmt
Level 11
October 16, 2018

"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.


Raywhite28
Raywhite28
Level 6
October 16, 2018
Thanks for the confirmation!
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