Wondering why your Cost of Goods Sold (COGS) is missing in QuickBooks Online?
If you’re new to QuickBooks Online, you may be wondering why your Profit and Loss reports are missing the Cost of Goods Sold.
Let’s go over some common mistakes people make and how to correct them so that the COGS show properly.
Inventory cost field
Businesses generally follow a process to receive inventory. They’ll create the inventory item, generate the purchase order, and create a bill to receive inventory.
QuickBooks Online uses the Bill (or any vendor document with the inventory item) to determine your COGS when a sales document is made. We’ll use the Bill for this article.
In the absence of a Bill, QuickBooks Online will use the Cost entered for reports. For instance, if you’ve been using checks to pay for inventory, then you’ll get incorrect COGS calculations since your price likely changes from one shipment to the next.
Some businesses will include a number here as a reference, but you may want to leave this field blank. It’s not required to create an inventory item, and it may confuse other people.
If your cost of a particular product is static and never changes, then including a value here may be convenient. For many retailers, this isn’t the case.
Category details vs. item details
Another mistake sellers make is creating a Bill and using the Category details field (an account) instead of the Item details field (an inventory item).
If you’re in a hurry or you’re entering transactions for the month, then it’s easy to make this mistake.
Many people may skip entering a bill to receive inventory and just create the inventory item in order to create a sales document.
One common mistake new users make is creating an inventory item with a starting value. Take a look at the example below.
If you simply create an inventory item and enter a starting quantity, you’ll get inflated profit and loss reports because QuickBooks Online has no cost of goods (unless you’ve entered a Cost value, as discussed above).
You’ll want to avoid manually adjusting inventory whenever there’s an issue. Create the proper documents to reflect the transaction.
To resolve this issue, make sure you create bills for any future inventory. Once you sell through your starting quantity, QuickBooks Online will properly calculate the COGS if you’ve entered Bills.
QuickBooks Online uses the First In First Out (FIFO) method. This method assumes that the first inventory you received is also the first to sell.
Because QuickBooks Online uses FIFO, inventory start dates and document dates are very important. You’ll get incorrect reports for specific reporting periods if you’re entering historical transactions and just using the current date.
Below is an example of selling through the first 100 starting quantity, a new bill to receive an additional 100 quantity at $20. Notice that sales after the first 100 sold have the proper COGS calculated.
Another solution to this issue is to adjust the starting inventory value back to zero. Then enter the Bill to receive inventory.
If you already have a lot of transactions, then you may want to avoid doing this since you may have already accounted for the cost.
When you enter the Bill for inventory, QuickBooks Online will automatically adjust the reports. Make sure that the date of the Bill is correct, as entering a Bill with the current date will not affect previous transactions.
Cash vs. accrual
You’ll get different values depending on whether or not you select Cash or Accrual for your Profit and Loss reports.
If your numbers don’t “look” right, then it may also be due to the dates. Using the correct date on your documents will affect your reports. This is especially important for people who enter their transactions once a week or once a month.
By default, QuickBooks Online will be set to Accrual. This report will show you all open invoices and bills, whereas the Cash report will show only money you’ve received and paid.
Whether or not you’ve received payment for invoices and made payment on the bills for your inventory will affect the cash and accrual reporting.
For a lot of small businesses, accounting practices can be very confusing. Most small business owners aren’t bookkeepers or accountants, and having to learn basic accounting principles, along with learning the supporting technology, can be confusing.
But making sure your books are accurate is extremely beneficial. Having accurate profit and loss reports allows to you plan your business accordingly.
Check out other articles related to bookkeeping and accounting on SellerZen: