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Service or Inventory Item

Forum|Forum|3 years ago
March 5, 2023
1 reply
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My client has subcontractors who perform services on their primary product. I have attempted to set-up their products and services several different ways and found that the services (even when I put the sales price and purchase price in) will not appear in the cost of goods sold in the books.

Creating a prepaid expense and recurring item will not work in this case as the service cost per finished product varies by weight.

I hesitate creating inventory items for the services provided if there is an alternative. I am working in QBO Plus.

QuickBooks Online

Best answer by Rainflurry

@Rozmore13

From both a financial and tax accounting perspective, COGS only applies to items sold that were previously booked as inventory. You can assign COGS to the expense account of a service product but that books the COGS entry when you purchase it, not when you sell it (which is the purpose of cost of goods sold), which is technically, improper accounting.

RainflurryAnswer

@Rozmore13

From both a financial and tax accounting perspective, COGS only applies to items sold that were previously booked as inventory. You can assign COGS to the expense account of a service product but that books the COGS entry when you purchase it, not when you sell it (which is the purpose of cost of goods sold), which is technically, improper accounting.

R

Rozmore13Author

Thanks for the clarity. I agree.

Roz

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