Recording Cost of Goods Sold (COGS) | Cash vs. accrual methods

Рет қаралды 5,506

3 жыл бұрын

Accurately recording Cost of Goods Sold (COGS) for product companies helps them better understand product margins. Many sellers start with a cash basis accounting method. But eventually moving to an accrual accounting method will help sellers track margins over time. This video is a quick demonstration of the difference between accounting for COGS with a cash basis method vs accrual method. From the inventory purchase to selling product, understand the accounting flow.
For help with your COGS accounting, view our Inventory and COGS accounting services: ledgergurus.com/services/cogs...
Here are more helpful resources we have recording this topic:
"Cost of Goods Sold - A key Number for Ecommerce Businesses" - ledgergurus.com/cost-of-goods...
"Understanding Inventory and Cost of Goods Sold (COGS) for Amazon Sellers" - • Understanding Inventor...
"Five Signs of Bookkeeping Trouble with an Ecommerce Business" - ledgergurus.com/resources/dow...
#costofgoodssold #ecommerceaccounting #ledgergurus
Say hi on social:
Facebook: / ledgergurus
Twitter: / ledgergurus
LinkedIn: / ledgergurus
• Recording Cost of Good...

Пікірлер: 19

@LedgerGurus 3 жыл бұрын

For help with your COGS accounting, view our inventory services page: ledgergurus.com/ecommerce-accounting-services/inventory-management-for-ecommerce/?KZfaq&

@elizabethpodest2759 Жыл бұрын

I hope this example helps: I use Accrual meaning when I purchase inventory, it goes on my inventory sheet but does NOT go on anything else so its not an expense till it actually sells. When that item sells, then I put it on my COGS and charge the expense at that time. My friend buys inventory and immediately writes it off, even if it never sells and sits for years... I like my method because she had a huge LOSS last year (cannot be carried over) then when all of the inventory sold this year, she has to pay taxes on all those profits and did not have much by way of expenses since she already wrote them off the previous year. With me only writing off what actually sold then I can better balance each year and try to have enough expenses to balance the losses to break even.

@LedgerGurus Жыл бұрын

That is definitely one of the benefits of accrual accounting. Good job!

@melaniestachowiak2090 Жыл бұрын

Hi! This comment was super helpful to me! I was wondering if you might be able to explain in a little bit more detail around COGS. Say this is your first year reselling but you have inventory that was purchased over the last 10 years (mostly personal items) how do you prove your COG for those items? do you just estimate?

@LedgerGurus Жыл бұрын

@@melaniestachowiak2090 If you don't have receipts, you'll have to estimate it.

@dw-dj1ii Жыл бұрын

I am a sole proprietor and use cash-basis. Or so I thought. Or at least that's what my CPA requests my financial statements in, instead of accrual-basis. But I see zero COGS on my P&L statement when I run the report as cash-basis and now I'm royally confused. What exactly are the journal entries for purchasing of inventory (cash basis)? Not raw materials or anything like that. I mean like.. Inventory purchased as an already Finished Good. I thought when you buy inventory that you later sell, the journal entry is always a Debit to Inventory (Asset) and a Credit to Cash (or A/P or whatever way you pay). I thought that the difference between accrual basis and cash basis is when you record the sale (accrual-basis being where you record sale now and cash-basis being where you record the sale when the customer actually pays you).

@LedgerGurus Жыл бұрын

It sounds like you have quite a few inventory accounting related questions. The best way to get those answered is to schedule a consultation. You can schedule that here - calendly.com/ledgergurus-bd-team/ecommerce-accounting-consultation

@dw-dj1ii Жыл бұрын

For cash-basis method, when you purchase inventory at one price and sell it to a customer for a higher price, what account would that cost of inventory that sold go to since apparently it doesn't go to COGS unless it's accrual?

@LedgerGurus Жыл бұрын

@seanm2818 3 жыл бұрын

In a hypothetical pure cash basis universe, there is no COGS because COGS is not a cash outflow

@gotihardik5590 3 жыл бұрын

which amazon report i use to enter month end inventory journal ?

@LedgerGurus 3 жыл бұрын

Use the Amazon transaction report. You can find this report in Amazon Seller Central under Payments>>Date Range Reports. When you click "Generate Report" you'll have an option to pull a Summary or Transaction report--you'll want the transaction report. Here you will be able to collect the information you need. If you are looking for further guidance, please reach out to us here: ledgergurus.com/services/cogs-accounting/

@DavidSaquing 10 ай бұрын

Hi, can you convert from accrual to cash? if yes, what the process? thanks.

@LedgerGurus 10 ай бұрын

We wrote a blog all about that. You can find it here: ledgergurus.com/should-i-use-cash-or-accrual-accounting/.

@waingirl 2 жыл бұрын

Are FIFO and Averaged COGS considered accrual accounting methods??

@LedgerGurus 2 жыл бұрын

Yes

@XavierFrancisJJ 3 жыл бұрын

I'm still confused

@LedgerGurus 3 жыл бұрын

I understand. This stuff can be confusing. Do you have any specific questions we can help you with?

@elizabethpodest2759 Жыл бұрын

I use Accrual meaning when I purchase inventory, it goes on my inventory sheet but does NOT go on anything else so its not an expense till it actually sells. When that item sells, then I put it on my COGS and charge the expense at that time. My friend buys a doll and immediately writes it off right, even if it never sells and sits for years... I like my method because she had a huge LOSS last year (cannot be carried over) then when all of the inventory sold this year, she has to pay taxes on all those profits and did not have much by way of expenses since she already wrote them off the previous year. With me only writing off what actually sold then I can better balance each year and try to have enough expenses to balance the losses to break even.