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Medalio Designs
February 9, 2024
Question

COGS vs Expense

  • February 9, 2024
  • 1 reply
  • 0 views

I have a business that I design and purchase coins to be manufactured. I then technically resell the coins to the customer. 

 

When categorizing my initial purchase from the manufacturer, will this be categorized as a costs of goods sold or an expense? 

 

Then my last question is, will my sale to the customer be a COGS or "income?"

1 reply

Rainflurry
Rainflurry
February 10, 2024

@Medalio Designs 

 

Do you receive the coins and ship them to your customer or are they shipped from the manufacturer?

 

If you receive and ship them, then your purchase of the coins is neither an expense or COGS, it is inventory (asset) until the coin is sold to your customer.  When you sell the coin, it becomes an expense at that time and is recorded as cost of goods sold.  Nothing is recorded to COGS until you sell it, as the name implies.  

 

Ideally, you would set up an inventory item for each coin and record the cost of purchasing the coin to that inventory item.  At that point, your inventory increases by the cost of the coin.  Then, when you sell the coin, use a sales receipt or invoice.  That will do four things: 1) reduce inventory by the cost of the coin, 2) increase COGS by the cost of the coin, 3) increase income by the sale price, and 4) record the payment received from the customer (if using a sales receipt) or increase A/R (if using an invoice) by the sale amount.

 

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