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JSTL
JSTL
April 29, 2019
Question

Income from billed COGS is offsetting COGS account instead of posting to income account

  • April 29, 2019
  • 2 replies
  • 0 views

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.

2 replies

L
LauraAB
April 29, 2019

Hi JSTL,

 

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!

JSTL
JSTLAuthor
April 29, 2019

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.

L
LauraAB
April 29, 2019

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.

R
Rochelley
April 29, 2019

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.

JSTL
JSTLAuthor
April 30, 2019

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.

R
Rochelley
April 30, 2019

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.

 

 

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