If I enter the expenses as ITEMS then they post correctly to the income account, however there are other issues with items which prevents me from using them.
If I enter the costs as EXPENSES then they offset the COGS account instead of posting as income.
How can I make income from billed COGS post correctly to the income account instead of offsetting the COGS account? Gross Margin and Net Income are accurate on a P&L but COGS represents the vast majority of our costs so it's frustrating that Total Revenue and COGS are so wildly inaccurate.
QB support have not been able to resolve.
I hope to be able to clarify the situation a bit so that you gain a better understanding of how QuickBooks Desktop is calculating your expenses. Having balanced books and knowing where your numbers stand is essential for running your business, so I want to help you sort this out.
As items and services that we're purchasing, expenses should not affect the COGS or income accounts as those relate to inventory items and services sold. When you go into the Chart of Accounts (shortcut CTRL + A) and double click the Cost of Goods Sold account, you should only be seeing invoices and sales receipt transactions there. I recommend taking a look at the Understand Inventory Assets and COGS Tracking article to learn more about this process in the program.
Another great resource for these kinds of questions is an accountant. We have several accountant users here in community who may be able to share their insight, or you can speak with your accountant directly about it. To find an accountant familiar with QuickBooks Desktop, use your postal code to search our Find an Accountant site and get connected.
Let me know if you have more questions. Enjoy your day!
I'm talking about expenses as a way of entering bills (I am not talking about expense accounts). EG when you enter a bill you can enter expenses or items. I enter COGS as expenses (because I can't use items for other reasons) and select a COGS account.
If you're not supposed to be able to enter COGS using expenses, then QB should not allow you to select a COGS account in that tab.
I hear what you're saying about the account showing up as an option in the expenses tab on a bill and will share that feedback with the product development team.
I want to make sure I'm following what you're trying to do. Since you're not using items, are you recording your sales in another way and then trying to have the COGS account affected by using the expenses portion of a bill? If not, can you please give me more details about why you're trying to record a COGS account in an expense? Knowing that may help me find a solution for your question.
I'm creating a bill, entering COGS under the expense tab and marking it as a billable expense. I then create an invoice and add the expense with markup. The billable expense offsets the COGS account but the markup goes to the income account.
We deal with two main taxes-GST and PST. GST is a VAT and QuickBooks calculates this correctly. PST is a cascading tax and we need to include the PST we paid for materials when we charge the customer. We are not charging PST on our services-our services are exempt from this tax-however we do need to include PST in the COGS as it's part of the cost to us. If I use expenses then QuickBooks adds the cost including PST to the invoice. If I use items then QB adds the cost net PST.
Does that make sense?
It sounds like you're doing what you're doing in an effort to accommodate the cascading tax calculations necessary for your products. Considering all you've said, I once again recommend touching base with an accountant about these matters to figure out the best way to do this. Sales tax can be assigned to items in inventory when you purchase and sell them, but if the program isn't quite doing what you need it to with the cascading tax, then you may be able to work out alternate solutions. Take a look at the Set up sales tax in QuickBooks Desktop and associated articles to learn more about the sales tax feature in the program.
Got it. As I mentioned initially, there may be accountant users here in the community that have thoughts or solutions to this. They often take a look at the questions posted by other users to see what they can do to lend a hand. :)
When you use Time and Expenses on an invoice that has been pulled from a Bill that you marked as 'billable' with an ITEM, it will always ONLY reimburse the cost or expense used on that Bill - thus the invoice populates with the words Total Reimbursable Expenses. You would only use that when you are simply being reimbursed for expenses. To pick up your PST in this instance you would have to change the amount on the actual invoice that you've pulled the expense line into to cover your laid down cost of PST.
However, you can direct this entire amount towards Income, rather than your COGS account. It is all in the way you set up your item. In order for your amount in this invoice transaction to NOT go to COGS, you have to go to your Item in the Item List, and check off the box in the middle that says: This item is used in assemblies or is purchased for a specific customer:job. As soon as you've done that, the other half of the window pops open with Sales Information on the right. Here is where you enter your income account. the Purchase Information should stay the same, your COGS account. Now when you use this Item in a bill transaction, and create an invoice from that bill, the entire amount in your invoice will go to Sales, not to reimburse COGS. It is currently only reimbursing COGS because you don't have the Sales side of that item set up yet.
What your item generally looks like when set up only one account:
What your item looks like when you select This item is used in assemblies or is purchased for a specific customer:job.
When you use Time and Expenses on an invoice that has been pulled from a Bill that you marked as 'billable' on a line in the Expense tab, it will still reimburse only the cost or expense used on that Bill, and ONLY what you indicate as 'Markup' goes to the income account designated at the time. For whatever reason, this one pulls in the PST as well; I really don't know why the ITEM tab doesn't do it the same way. Another one of Intuit's foibles :)
This is just the way it is designed. If you are in the construction business and are billing Time & Materials, this would the only time I think it would make sense to use the 'billable' flag on the Expense tab on the bill, as it usually has been pre-arranged with your customer that they will see the time that you are billing, as well as the cost of materials + whatever % markup you agreed upon.
Another way to bill your clients would be to not use the 'Billable' flag on bills. Rather, enter your customer name:job on each line. If you want to know what all your costs are for a particular client/job, then you need to implement job tracking and/or class tracking. Then you can pull a report for all your COGS on that job/class i.e. Profit and Loss by Job report, and determine all your costs on the job so far and what you are wanting to invoice for the sale. The PST will show up as part of your costs as long as you do not have Track tax on purchases separately checked in your PST tax vendor record.
Thanks. Yes, this is exactly what I have discovered.
If I use items the income goes to the correct account but I have to manually adjust the amount on the invoice (not practical for us) or fudge the PST when entering bills (possible).
If I use expenses the PST pulls correctly but the income goes back to COGS and I'd have to manually adjust if I want an accurate P&L.
I don't think it's practical NOT to mark things as billable-I'd either have to spend the time to type in each bill as a separate line on the invoice, OR spend the time typing it when clients ask because the invoice is not clear enough for them. I could copy/paste from Excel to the invoice but it it's still adding a lot of opportunities for error.
As you suggested I am in the construction industry and some clients want to check every single expense so it's easiest for everyone if the invoices are very clear.
How important is it that total income and total COGS are accurate on a P&L? Gross Profit and Net Income are still correct. Is it only for our own budgeting and planning purposes that we need those numbers? Is it worth entering a monthly journal entry to transfer reimbursed COGS to the income account? Are there other implications to making entries like that?
Thanks for your help.
The 'billable' function is actually intended to reimburse expenses. If you are truly billing your clients for 'Time & Materials', or Materials + mark-up, then you are not really selling the materials. You're just passing along the expense and your true income is only what you put in the 'mark-up' income account. In that case, your financials would be correct; income is only the mark-up and COGS is a lower number because you are 'reimbursing' the COGS when you bill to client.
On the other hand, if you are selling to your client a job with a pre-determined contract price where you are not revealing the cost lines to them, then you should create an invoice for the entire contract, which would all be income, offset by the entire COGS + PST, which is your expenses. Then you will see more what you are expecting to see on the income statement.
So it depends on how you have set up your contract with your clients. Cost + would be the first way, only realizing the mark-up as income, and total income less total COGS would be the second way.
It also wouldn't hurt to check with your external accountant what they think is best. But I believe it is perfectly acceptable to bill time and materials + markup the first way. Yes, your income is lower, but so is your COGS so it is still all correct in relation to the overall profit & loss.
This may solve your original problem where when you tracked expenses as billable and then added them to an invoice, it defaults to reimbursing COGS rather than increasing income. I had completely forgotten about this setting but it will accomplish what you want:
But you have to use the 'expense tab' on the bill in order for the PST to automatically populate into your reimbursable item on your invoice. If you use 'item' tab, you will still have to manually adjust your invoice amount to include the PST. But either way, as long as 'track reimbursed expenses as income' is checked in preferences, they will both show up as a sale rather than as a negative COGS on your financial statements.
We also use the "Expenses" tab when entering COGS that need to be billed out; QB isn't a good program for billing out COGS compared to others that I've used. When I use the "Add Time/Costs" to enter the COGS to an invoice and select the appropriate income account to post the mark up to, it shouldn't just post the mark up to the income account and then reduce the COGS -- the entire amount being billed out should go to the income account.
If I've been purchasing materials over many months in preparation for an upcoming project, I don't want to see a negative COGS amount when it's time to bill the job out several months after I've purchased the material -- the only work around I've found is to do a journal entry afterwards to credit the income account and debit the negative amount in the COGS account. (It's not ideal, especially when changes have to be made to an invoice because I have to remember to do another re-class JE but until QB gets a better system, it's the only thing that works for our business).
Thanks for joining the thread and explaining what you're seeing in your COGS account on your Profit & Loss report. It's great that you've included a screenshot as well so that I have a clear picture of what's happening. I'd be happy to explain why you're seeing the debit happening in this account.
QuickBooks Desktop uses a double-entry accounting method, so this is perfectly normal based on how QuickBooks enters the information. I can appreciate that you'd like to confirm that everything is working as intended.
If you'd like further information, take a look at this helpful resource from the Community: Understand inventory assets and cost of goods sold tracking.
As explained in the article, "normally, inventory COGS is only affected when you sell inventory items on invoices or sales receipts. When you sell an inventory item, run the Transaction Journal Report for the invoice/sales receipt and you see the Sales/Accounts Receivable transaction and you'll see the Inventory/COGS transactions which credits the Inventory Asset account and debits the COGS accounts."
I hope this helps clarify things for you moving forward. If you have any other questions, please don't hesitate to reach out to our tech support team.
Items received into inventory are considered an asset until they are sold so it is correct that they are being debited to that account. When they are sold, the inventory asset account is reduced and the COGS is increased because you have now sold those goods -- COGS for an inventory item is not affected until an item is sold so that the income from that item and the cost of that item are both reflected on the same period in the income statement.
Reading thru everything, I still have a question. with one of my items, I have it set up correctly (cogs/sales).
I notice that when I enter a Bill, using the item tab for this item, when I look at the COGS account, I see the invoices to my customers but I also see the Bills from my vendors??? so the report shows that my COGS is doubled, how can I fix this??
Making sure you understand how the information is entered into your Chart of Accounts is a great way to understand how everything is tracked. I can help explain this for you.
When you see a bill showing in your COGS account this is because the inventory will hit both accounts. You should see the transaction credit the Inventory Asset account and debit the COGS account. To better understand this I suggest getting in touch with your accountant as they are trained in these matters. If you don't have an accountant we have your back. You can go to our find an accountant page to find one in your area.
Hope this helped!