Cost of Goods Sold vs Expenses

by | Aug 25, 2016 | Bookkeeping 101, Chart of Accounts Setup & Management, QuickBooks for Mac, QuickBooks for Windows, QuickBooks Online

Cost of Goods Sold are those costs that are directly associated with the production of a good or goods, or with direct service that leads to a sale. Expenses are all the other costs that are not COGS. See list of COGS and Expenses below:

Cost of Goods Sold Accounts

  • Blueprints and Reproduction: Blueprints, photostats, and other printing expense
  • Bond Expense: Construction bonds expenses directly related to jobs
  • Construction Materials Costs: Construction materials costs
  • Contracted Services: Direct labor costs for contract (non-employees) performing services for clients
  • Equipment Rental for Jobs: Rent paid for rented equipment used on jobs
  • Freight and Shipping Costs: Freight-in and shipping costs for delivery to customers
  • Freight Costs: Costs of freight and delivery for merchandise purchased
  • Job Materials Purchased: Construction materials used on jobs
  • Linens and Lodging Supplies: Costs of linens and other supplies for guest rooms
  • Materials Costs: Cost of materials used on jobs
  • Media Purchased for Clients: Print, TV, radio, and other media purchased for clients
  • Merchant Account Fees: Credit card merchant account discount fees, transaction fees, and related costs
  • Other Construction Costs: Other costs directly related to jobs such as waste disposal, onsite storage rental, etc.
  • Other Job Related Costs: Other costs directly related to jobs such as waste disposal, onsite storage rental, etc.
  • Parts Purchases: Purchases of parts for use on customer repairs or resale
  • Purchases – Hardware for Resale: Purchases of hardware items for resale that are not tracked or counted in inventory
  • Purchases – Resale Items: Purchases of items for resale that are not tracked or counted in inventory
  • Purchases – Software for Resale: Purchases of software items for resale that are not tracked or counted in inventory
  • Subcontracted Services: Subcontracted services for customer service orders
  • Subcontractors Expense: Subcontracted services performed by other contractors
  • Tools and Small Equipment: Purchases of tools or small equipment used on jobs
  • Worker’s Compensation Insurance: Worker’s compensation insurance premiums

Expense Accounts

  • Advertising and Promotion: Advertising, marketing, graphic design, and other promotional expenses
  • Auto and Truck Expenses: Fuel, oil, repairs, and other maintenance for business autos and trucks
  • Automobile Expense: Fuel, oil, repairs, and other automobile maintenance for business autos
  • Bank Service Charges: Bank account service fees, bad check charges and other bank fees
  • Business Licenses and Permits: Business licenses, permits, and other business-related fees
  • Car and Truck Expenses: Fuel, oil, repairs, and other car and truck maintenance
  • Chemicals Purchased: Costs of chemicals used in farming operations
  • Computer and Internet Expenses: Computer supplies, off-the-shelf software, online fees, and other computer or internet related expenses
  • Continuing Education: Seminars, educational expenses and employee development, not including travel
  • Depreciation Expense: Depreciation on equipment, buildings and improvementsDues and Subscriptions: Subscriptions and membership dues for civic, service, professional, trade organizations
  • Equipment Rental: Rent paid for rented equipment used for business
  • Fertilizers and Lime: Fertilizers and lime purchased for farm operations
  • Freight and Trucking: Amounts paid for freight or trucking of farm products
  • Gasoline, Fuel and Oil: Gasoline, fuel or oil used for farm machinery
  • Insurance Expense: Insurance expenses
  • Insurance Expense: General Liability Insurance: General liability insurance premiums
  • Insurance Expense: Life and Disability Insurance: Employee life and disability insurance premiums
  • Insurance Expense: Professional Liability: Professional liability (errors and omissions) insurance
  • Insurance Expense: Workers Compensation: Worker’s compensation insurance premiums
  • Interest Expense: Interest payments on business loans, credit card balances, or other business debt
  • Janitorial Expense: Janitorial expenses and cleaning supplies
  • Landscaping and Groundskeeping: Landscape maintenance, gardening, and pool maintenance costs
  • Marketing Expense: Advertising, marketing, graphic design, and other promotional expenses for our company
  • Meals and Entertainment: Business meals and entertainment expenses, including travel-related meals (may have limited deductibility)
  • Office Supplies: Office supplies expense
  • Payroll Expenses: Payroll expenses
  • Postage and Delivery: Postage, courier, and pickup and delivery services
  • Printing and Reproduction: Printing, copies, and other reproduction expenses
  • Professional Fees: Payments to attorneys and other professionals for services rendered
  • Rent Expense: Rent paid for company offices or other structures used in the business
  • Repairs and Maintenance: Incidental repairs and maintenance of business assets that do not add to the value or prolong its life
  • Research Services: Research costs including legal library and subscriptions for research services
  • Salon Supplies, Linens, Laundry: Costs of supplies used in the course of business (includes linens and laundry services)
  • Seeds and Plants Purchased: Seeds and plants purchased for producing farm income
  • Shop Expense: Miscellaneous shop supplies and related shop expenses (rags, hand cleaning supplies, etc.)
  • Small Tools and Equipment: Purchases of small tools or equipment not classified as fixed assets
  • Storage and Warehousing: Amounts paid to store farm commodities
  • Taxes – Property: Taxes paid on property owned by the business, franchise taxes, excise taxes, etc.
  • Telephone Expense: Telephone and long distance charges, faxing, and other fees Not equipment purchases
  • Travel Expense: Business-related travel expenses including airline tickets, taxi fares, hotel and other travel expenses
    Uniforms: Uniforms for employees and contractors
  • Utilities: Water, electricity, garbage, and other basic utilities expenses

What is Causing My Cost of Goods Sold Accounts to Show Negative Numbers?

by | Apr 25, 2016 | Bookkeeping 101, Company Setup & Management, Invoicing & Receivables, QuickBooks for Mac, QuickBooks for Windows, QuickBooks Online, Reimbursements and Investments

Why is My Cost of Goods Sold Showing Negative Numbers

The most common cause of this problem is that some items are using COGS for the income account. If you have invoices with items that have a COGS account as their income account, this will definitely cause a negative Cost of Goods Sold. Review the invoices hitting COGS and see which actual items are involved and then change the items in the item list. You have more credits than you do debits and those credits are coming from invoices hitting Cost of Goods Sold. COGS should be a debit with no invoices in the detail. You need to look at the invoices that are hitting COGS and see which exact line item it is. That is the item that has the incorrect account for income. That said, there a few other things that can cause the COGS to be negative.

Few things that can cause the COGS to be negative:

  • Using an item on the invoice that has a COGS account as the income account
  • Using an inventory item on a credit memo
  • Using the COGS account as a credit on a journal entry
  • Using the COGS account on a deposit

To fix the negative Cost of Goods Sold problem:

To locate and correct this issue, you need to start by generating a detail transaction report of your Cost of Goods Sold account(s). Once you have done that, double-click on all the negative transactions to see what exactly is causing the problem. You can also select the Reports button at the top of the transaction (not the top-level menu) and then select Transaction Journal. You can press Ctrl Y while the transaction is open to see what the underlying journal is.

You are looking for amounts in the Credit column for the COGS account – debits increase it, credits decrease it. If you are using items, inventory and other functionalities of QuickBooks, the direct problem could be one or more bills, checks, credit card charges, Invoices, credit memos, journal entries, or deposits. This report will show you exactly what is causing it.

In addition, you need to make sure that reimbursable expense is an Income account if you have reimbursables, and also ensure that the option is checked in the Preferences to track reimbursable expenses by going to Edit, Preferences, Time & Expenses, Company Preferences and make sure “Track reimbursed expenses as income” is checked.

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Differentiating Payroll, Cost of Goods Sold, and Officers Salary

by | Aug 7, 2014 | Bookkeeping 101, Chart of Accounts Setup & Management, Company Setup & Management, Payroll Setup & Management

How to differentiate payroll vs Cost of Goods Sold vs Officers Salary

I have gotten so many questions about recording owners salary accurately and allocating payroll for direct labor workers versus admin staff, I have decided to elaborate on it a bit here.

  • Cost of Goods Sold includes payroll that is associated with the creation of a sale or sales. For example when an electrician employee goes to work on an electrical assignment that the company invoice for, that payroll cost should be recorded to Cost of Goods Sold otherwise called Cost of Sales. In addition, Cost of Goods Sold includes all expenses that are accumulated as a result of completing a job that leads to an income. Expenses such as raw material, items purchased for resale, cost of parts used to construct a product for resale are all Cost of Goods Sold. If an equipment is rented to aid in the process of a job that will lead to an income, it is also to be classified as Cost of Goods Sold. If an employee uses a portion of his or her day to engage in the direct creation of a product for resale and a portion to engage in administrative tasks, the portion that is related to building the product should be coded to COGS and the admin portion coded to regular payroll expense.
  • Officers’ salaries should not be classified as Cost of Goods Sold, even if a sale was derived from his or her direct input. It should be allocated to payroll with an item name such as Officers Salary in order to differentiate it from other payroll items. Regular payroll, Cost of Goods Sold payroll, and Officers’ salaries payroll are each reported separately on Income tax forms. However, in order for a company to be able to pull a Profit and Loss Report for example, and get an accurate synopsis of the overall cost of sales, the amounts for Cost of Goods Sold – including the Officers’ salaries that are direct cost of sales will need to be coded to Cost of Goods Sold. Separating them with their unique item names, will allow you to generate reports that show the total of each so as to include them in their rightful places on your tax forms with ease.
  • When we speak of payroll, it is usually to define payments made at regular intervals for work done by employees which includes employees’ deductions as well as employers assigned portions that must be reported and paid to various government agencies. However, for Corporations, payroll includes Officers as well as employees. Owners of Corporations are called Officers, and they are required to include themselves on their company’s payroll, as their company is viewed as a separate person or entity – legally. For Sole Proprietors, and Limited Liability Companies (LLC’s) operating as Sole Proprietors, they are free to withdraw monies and record their drawings as Owners Draw. LLC’s operating as Corporations must follow the same procedure as Corporations discussed above.

Thus, monies paid to staff involved in direct sales – Cost of Goods Sold, Officers, and administrative staff are all classified as payroll.