COGS Definition

Cost of goods sold means literally what is says.

The COGS definition is this:

>>>It's the purchase price of inventory
that was sold during the tax year.<<<

It does not include cost of goods purchased. Purchased inventory is not written off until it is sold, which may be immediately, or may be quite a long time later. Unsold purchased inventory is an asset on the balance sheet.

When we buy inventory items, they are placed on the balance sheet in the form of an asset in the Enter Bills, Receive Items, Write Checks, or Enter Credit Card Charges screens, since these are the screens we can use to record inventory purchases. Inventory remains on the balance sheet until we generated an invoice for a customer.

Once an invoice is generated for a customer, QuickBooks computes COGS by taking the costing information of the specific inventory items, and moving it from the balance sheet to the profit and loss statement as of the date of the invoice. The revenue date matches with the COGS date exactly. This allows for very accurate financial reporting – you can generate a P&L for a single day and get accurate COGS information.

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If your inventory is set up and used correctly in QuickBooks, you do not manually compute COGS for QuickBooks. It's an internal calculation QuickBooks makes it for you.

But... you still might want to compute COGS manually from time to time.

Why? So you can double-check that activity regarding your physical inventory matches what's going on in QuickBooks.

Learn how to manually compute COGS, and get tips for taking a physical inventory below.

Related Pages:

COGS Equation - How to Compute COGS Manually

Tips for Taking a Physical Inventory

Inventory Adjustments in QuickBooks

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