Using Inventory and Cost of Goods

JS7319JS7319 Member Posts: 3

I run a small online retail outlet and have been using wave for the past 7 months. When setting up I wasn't sure whether I needed to use 'Inventory' or 'Cost of Goods' when categorizing transactions from suppliers. Now that I have explored my reports a little more depth it's possible that I might have been using the wrong expense category. The description in Wave says that expenses related to the cost of selling good should come under CoG, so all my purchases from suppliers for stock and shipping the item out has come under this category.

Can someone help explain whether I need to re-categorise all supplier payments as 'Inventory' instead? And whether shipping costs associated with those items being sent out as CoG?

Thank you.

Comments

  • ErikErik Administrator Posts: 190 admin

    Hi! This may depend on what you are purchasing and selling, as well as the amount that is involved. E.g. are you purchasing items and selling them as-is? Or are you purchasing items, building something with it, then selling this as a new product?

    You can learn more about these determinants, as well as how to account for them, in our Fearless Accounting Guide here: https://bit.ly/Wave-Fearless-Accounting

    It would be found on page 74! Feel free to chime in here if you have questions though!

  • JS7319JS7319 Member Posts: 3

    @Erik said:
    Hi! This may depend on what you are purchasing and selling, as well as the amount that is involved. E.g. are you purchasing items and selling them as-is? Or are you purchasing items, building something with it, then selling this as a new product?

    You can learn more about these determinants, as well as how to account for them, in our Fearless Accounting Guide here: https://bit.ly/Wave-Fearless-Accounting

    It would be found on page 74! Feel free to chime in here if you have questions though!

    Thank you for referring me to the guide, it has been helpful. It seems that I have been doing it correctly. I don't need to know too much about my inventory and the calculations of assets held won't be too significant to my business. I'm using wave primarily to track how profitable the business is at the moment.

    I suppose a final question would be, when shipping an item out I have been putting this under an expenses for CoGS as the shipping costs are not 'overheads' but rather they are associated directly with the product being sold. My understanding is that if I was to put this down a freight (an option in Wave my default), it accounts as an overhead and is not trackable as an expense associated with the cost of a sold item?

  • Kyle_CKyle_C Member Posts: 1

    Hello, I am still learning myself but here is what I did to get shipping into CoGS:

    in the chart of accounts under Expenses/ CoGS I added a new category for 'shipping fees'. Hopefully this is correct and if anyone has any insight I'd love to hear it.

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