Understanding COGS: A Guide for QuickBooks Users

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In this article, we'll delve into the world of Cost of Goods Sold (COGs) in Quickbooks and explore how it impacts your business's bottom line.

What are COGS?

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Cost of Goods Sold refers to the direct costs associated with producing or acquiring goods or services that a company sells. In other words, these expenses directly contribute to generating revenue for your business.

When Should You Recognize COGS in QuickBooks?

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COGs should be recognized when inventory items are sold on invoices and sales receipts. This means that as soon as you sell an item, the corresponding cost of goods sold will be recorded in Quickbooks.

How Do I Record COGS Transactions in QuickBooks?

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To record COGS transactions accurately:

1. Go to Reports > Transaction Journal Report

2. Search for the specific invoice or sales receipt related to the transaction

3. Look for both a Sales/Accounts Receivable and an Inventory/COGs transaction

These two entries will credit your Inventory Asset account while debiting the corresponding COGS accounts.

Why Is It Important To Understand COGS?

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Failing to properly record COGS can lead to inaccurate financial statements, making it challenging to make informed business decisions. By understanding how COGS works in Quickbooks and accurately recording these transactions:

* You'll be able to accurately calculate your profit margins

* Your balance sheet will reflect accurate inventory levels

* In the event of an audit or tax inspection, you'll have a clear paper trail for all COGs expenses

Additional Tips For Managing Inventory And COGS:

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1. Use reports regularly to monitor sales and inventory status.

2. Consult with a certified accountant or bookkeeper if unsure about using correct accounts.

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