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wto24
June 19, 2022
Question

for tax purposes how does cost of goods sold and expenses work?

  • June 19, 2022
  • 2 replies
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I have a new shirt business. I am trying to record everything I have bought so far which items are a new computer, desk, heat press, cricut, shirts, vinyl, screen print transfers. I have listed these items under supplies and materials. 

 

What would I put under Cost of goods sold? If I have already recorded these I do not want them to be counted twice. The only thing that would be missing for cost of goods sold is the time it took me to make the item.

 

upon looking further into questions answered it also states that my sales can show my costs of goods sold. So if I keep all those expenses as supplies and materials and record my sales that should then show me my profit/loss margin correct?

2 replies

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Ethel_A12
June 19, 2022

Welcome to the Community, @wto24.

 

I appreciate you reading some resources here in the Community. Let me share some insights about the Cost of Goods Sold.

 

The overall cost of creating a product or service you sell is the Cost of Goods Sold, COGS, cost of sales, or COS. It is a cost to your company. When you make anything, the Cost of Goods Sold comprises the supplies, labor, and expenses associated with selling it. It impacts directly on how much money you make per item sold.

 

Then the [Sales revenue] – [COGS] = The actual amount you make per item. The cost of products sold includes only the direct costs. It should not include rent, marketing, and advertising which are indirect expenses.

 

The Profit & Loss report displays the Sales of Product Income accounts. As well as the Cost of Goods Sold (COGS) accounts for inventory-enabled Product/Service items.

Between the Income and Expense areas of the report, it also provides the COGS accounts in a separate section.

 

It is also best to learn more about the impacts of inventory tracking on the Balance Sheet and Profit & Loss reports.

 

Let me know if you have additional questions about the Cost of Goods Sold in QuickBooks Online. Leave a comment below. I'm always here to help you.

Rainflurry
Rainflurry
June 19, 2022

@wto24 

 

Cost of goods sold, as the name implies, is the cost you have into the product that has been sold.  You do not expense directly to cost of goods sold.  When you buy shirts for resale, you record them as inventory (asset).  They sit in inventory until they are sold to a customer, at which point, they are removed from inventory and expensed to cost of goods sold.  Take a look at Part III of Schedule C (Form 1040) and/or IRS Form 1125-A.  It shows you how COGS is calculated. 

 

The new equipment assets that you purchased (computer, desk, heat press, etc.) are considered fixed assets.  However, you are not necessarily required to record them as fixed assets.  They can be recorded as an expense (if under $2,500), a fixed asset and then depreciated over the life of the asset, or as a fixed asset and then fully depreciated in the year they are put into service.  This is where having your own CPA is a good idea.  There are advantages and disadvantages to each method.  If you expect your income to increase in the future, saving the depreciation expense for future years may be a better route. 

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