Cost of Goods

Question

I have been searching for an answer and just cannot seem to find an explanation that makes sense to me. For background, I have been using QuickBooks Desktop for Mac 2019. My MacBook Air completely crashed and I lost all my data (I know, I should have had them backed up). I am having to recreate all our data. I was was going to use the Desktop Quickbooks again but have seen some articles about incompatibility with my Mac operating system. I am now trying to recreate everything in Quickbooks Online (QBO). My questions/frustration is with the COGS and how it displays on the P&L reports.

With our Desktop version, COGS was displaying correctly: COGS would appear on the P&L when we recorded a sale (income) of an inventory item. Now with QBO, COGS shows the full purchase price as soon as we record the bill payment, even though there are no sales (income) associated. This is a sample of the impact I am seeing on our P&L:

Income

INCOME MONTHLY RENTAL 567.02

Total INCOME 567.02

Total Income $567.02

Cost of Goods Sold

Cost of Goods Sold 9.88

Total Cost of Goods Sold 9.88

Total Cost of Goods Sold $9.88

GROSS PROFIT $557.14

As you see from the above, there is no Income from the sale of the inventory item. I have gone back to make sure that all Inventory items have the correct accounts associated. Each Inventory item has the following accounts associated:

Inventory Asset: Inventory Asset

Expense: Sales: Merchandise Sales

Cost of Goods Sold: Cost of Goods

To test, we loaded the data the exact same way in the Desktop version but the P&L does not show any COGS because there has not been a sale recorded.

I am thinking that QBO has something in the background that is driving the COGS to the P&L statement before it should. This makes are reports seem incorrect but maybe I am wrong. Is there another way to set up our Inventory items in QBO that is different from the Desktop version?

I know this is long-winded but I want to give as much detail as possible in the hope that someone can help explain this or help correct it so that COGS is reporting correctly in QBO.

Any help would be greatly appreciated.

refindary · Accepted Answer

Thanks for getting back to us, @refindary.

Let me provide additional details about the COGS amount in the Profit and Loss report and help you from there.

As mentioned by my colleague RaymondJayO, using the Cash basis for the accounting method of a report may show the incorrect gross amount. It's the possible reason That's why we suggest changing it to Accrual basis since this includes income and expenses even if the money hasn’t changed hands yet.

On the other hand, you can consider reviewing the account associated with the Inventory asset account so you can check it on your Balance Sheet report. Here's how:

Click the Gear icon, then select Products and Services.
Locate each inventory item and click Edit under the Action column.
In the Inventory asset account, review the account associated with it.
Click Save and close once done.

Then, go back to your Balance Sheet report and check the account from there.

Here are some articles you can read for more details:

Keep in touch if you need any more assistance with this, or there's something else I can do for you. I've got your back. Have a good day.

@Mark_R wrote:
Thanks for getting back to us, @refindary.

Let me provide additional details about the COGS amount in the Profit and Loss report and help you from there.

As mentioned by my colleague RaymondJayO, using the Cash basis for the accounting method of a report may show the incorrect gross amount. It's the possible reason That's why we suggest changing it to Accrual basis since this includes income and expenses even if the money hasn’t changed hands yet.

On the other hand, you can consider reviewing the account associated with the Inventory asset account so you can check it on your Balance Sheet report. Here's how:

Click the Gear icon, then select Products and Services.
Locate each inventory item and click Edit under the Action column.
In the Inventory asset account, review the account associated with it.
Click Save and close once done.
Then, go back to your Balance Sheet report and check the account from there.

Here are some articles you can read for more details:

Impacts of stock tracking on balance sheet and profit & loss reports.
Change your accounting method.
Keep in touch if you need any more assistance with this, or there's something else I can do for you. I've got your back. Have a good day.

Thank you for the clarification and the helpful insight. I am not sure what happened the first time I switched the P&L report to Accural and I still was seeing the COGS listed. However, I tried again with success on both the P&L and Balance Sheet. Again, thank you for explaining this to me and pointing out how to change the reporting type from Cost to Accural. I cannot believe I was missing that toggle.

RaymondJayO · Answer

Thank you for providing on-point details about your concern, @refindary. I'm here to ensure you're able to fix the incorrect COGS amount on the Profit and Loss (P&L) report.

You're on the right track in reviewing the correct accounts associated with each of your inventory items. Based on your scenario, it looks like you have set them up in QBO correctly. For more details, check out this article: Set Up and Track Your Stock.

Here are the possible reasons the COGS is only showing $9.88 on the P&L report:

The accounting method is not appropriate.
Incorrect date range.

To help fix this, let's make sure the Report period and Accounting method used in the report are correct. This way, you'll be able to view the income from the sale of your inventory item. I'll guide you how.

Go to Reports from the left menu.
Select the Profit and Loss report.
Set the correct Report period.
Choose the appropriate Accounting method.
Click Run report.

The screenshot below shows you the last three steps.

However, if your company operates on a cash basis, I'd suggest changing the accounting method to Accrual. This way, the gross profit amount will be accurate. This is one of the specific impacts of stock tracking on your P&L report. For more information, see the Impacts on profit & loss report section through this article: Impacts Of Stock Tracking On Profit and Loss Reports.

Moreover, I recommend running any inventory reports in the software. These will help you view your best sellers, what’s on hand, the cost of goods sold, and the stock statuses. To learn more about this process, go through this article: Use Reports To See Your Sales And Stock Status.

I'm just a comment away if you need anything else. Wishing you and your business continued success while using QBO, @refindary.

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