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srizzo
April 24, 2025
Question

Cost of Goods & Services Setup

  • April 24, 2025
  • 1 reply
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Hello. I am looking for guidance on setting up Cost of Goods in QuickBooks Online. I have the categories that we want and will track across various customers, but am not clear on how to set it up properly and connect the two sides. I followed an AI reply where I created a Cost of Goods Sold account and then setup the Product/Service side, but only a test item until I can figure out how the enter the categories. We have the correct subscription version that allows for tracking.

Any guidance or videos you could direct me to?

Thanks

Serena

1 reply

A
Aldren18
April 24, 2025

I’m here to ensure your QuickBooks setup is smooth and tailored perfectly to your business needs, Serena. Let’s get those categories tracking just right together.

 

QuickBooks Online uses a default COGS account with the detail type "Cost of Goods Sold" for inventory items. Even if you create additional COGS accounts with this detail type, only the default one applies automatically to inventory items.

 

However, you can create a COGS account with a COS detail type that can only be assigned to items that are not classified as inventory (or other types than inventory). In addition, it will be reported differently on the Profit and Loss statement.

 

If the product or service you’re setting up is a service you purchase from a vendor, please enable the option I purchase this service from a vendor. This allows you to assign the service’s cost directly to the COGS account you created. Please note, this option is applicable only if the COGS account you created has a Cost of Services (COS) detail type.

 

Here’s how to do it step-by-step:

 

  1. Go to the Sales menu from the left navigation panel.
  2. Click New and select Service from the dropdown.
  3. Check the box for I purchase this service from a vendor.

  4. In the Expense Account field, choose your existing COGS account or create a new one.
  5. Click Save and Close.

 

If you’re setting up an inventory product, there’s no need to check that box. QuickBooks automatically prompts you to assign the correct expense account when you create or edit the item, linking it seamlessly to the default COGS account.

 

For more comprehensive details about setting up your COGS, check out this resource article: Cost of Goods Sold.

 

Additionally, I'd like to share some helpful resources that can guide you in customizing COGS reports in QBO to gain deeper insights into your finances: Customize reports in QBO.

 

Revisit this thread for any further questions or need assistance along the way. This community forum is always available to assist you with managing your COGS in the system.

 

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srizzoAuthor
April 24, 2025

Thank you very much for your reply. I read about companies that have inventory and checked out the link for specialized reports, but my issue is the setup. We are primarily a service provider and do not carry inventory. We do incur costs for one off equipment purchases as needed by the clients in the course of providing these services. This is typically billed back to the client at the exact cost so is never really inventory. That said, we want to track all costs associated - labor, benefits, insurance, facility costs, etc. These are the categories I need to set up. How do I create the exact categories within the COGS infrastructure so I am seeing it in the reporting? 

 

Thanks so much for your help! It is a newer concept for me. I understand its utility, but want to make sure it is setup correctly as it would be so much to correct later if not.

 

Serena

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SashaMC
April 24, 2025

Good afternoon srizzo,

 

Thank you for sharing this information. However, to know which specific categories to add, you would need to consult with your accountant about what would be best for your business. 

 

By following the steps the agent shared above, you should be able to create the categories needed. The link shared as well breaks down all aspects of COGS accounting. 

 

Please let me know if you have further questions or concerns, I will be around to assist further. See you later. 

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