Not understanding "Cost of Goods/ Sold Freight & Shipping Costs"

AnikaBKAnikaBK Member Posts: 2

Hi All.

I have a small jewelry business.

I'm trying to use Wave just for making Profit-Loss statement (not to generate invoice)

I mostly have following accounts

  1. Sales (I add one total figure after every month)
  2. Inventory (Total cost to buy goods from my dealers)
  3. Shipping cost (Cost to bring good from dealer to my home country)
  4. Additional office expense

I'm confused about 2 and 3 no points. Number 2 isn't showing as an expense. I think I shouldn't put the goods cost under inventory then. What will be the account?

for Shipping cost, it's showing equal amount as Cost of Goods Sold. Why is that? Isn't Cost of Goods Sold will be equal to Sales.

Please help. I'm terrible at Accounting.


  • AlexiaAlexia Administrator Posts: 3,314 admin

    Hi, @AnikaBK.

    I can help you out. Accounting is pretty challenging when you aren't immersed in it all the time. I'll help you make sense of it all and get into details so that everything's clear. Let's start by going over the accounts you'll need.

    • Sales, which already exists and is an income account. You're good there.
    • Inventory, an asset account. This represents the value you paid for the stock you have. So when you buy inventory, you make an expense from your bank account to this account.
    • Your bank account, an asset account.
    • Shipping cost, an expense account. This is marked as expenses because it's money you lose.
    • Cost of goods sold, an expense account. This represents the cost to you for items you sold. If you pay $10 for an item and sell it for $15, you'll have $10 here and $15 in Sales. We'll get into that later.
    • Whatever other expense accounts you might need.

    Buying stock

    When you buy inventory, you'll make a bill, on the Bills page, under Purchases. We'll say you're buying $50 of inventory and you'll sell for twice that.

    • Create two line items, one for your inventory, one for shipping. Choose the appropriate category.
    • Mark $50 for the price of the inventory line, and the shipping amount on the shipping line.
    • This will set you Inventory to $50. This isn't an expense, you've just transformed that money into something else that has value. It won't show on a Profit and Loss report yet.

    Making a sale

    Let's say you sell an item for $20 (which is worth $10 of inventory to you)...

    • You enter an income transaction for $20 and choose Sales as the category.
    • Then, click on "More" in the top right of your Transactions page and choose "Add a journal transaction".
    • Make a journal transaction that debits Cost of Goods Sold and credits Inventory for the cost to you of the items sold. That's $10 here.

    ... and that's all! Your reports will now show that you've made $10 of profit through this process, that you've made a sale for $20, that you've paid $50 for inventory and that you have $40 worth of inventory left.

    Does this all make sense? I know that the screenshots from our guide on inventory are a little confusing and need to be updated (that merchant is just selling their product at cost, which seems like bad business sense to me!)

  • AnikaBKAnikaBK Member Posts: 2

    My My!
    I see where I'm going wrong. I'm not making the journal entries that you mentioned under 'Making A Sale'. That's why the cost of good wasn't showing as an expense.

    But the problem is I don't have individual data for that journal transaction to make. What I mean is I sell different sets small jewelries in bulk everyday. I do have a common pricing formula, I can use that find the the approximate cost of those goods sold; but it won't be accurate every time :(

    Could I explain what my problem is?
    What do sellers like me do? Who have bulk sales figures with bulk costing/ expenses?

    I really appreciate your help :)

  • AlexiaAlexia Administrator Posts: 3,314 admin


    @AnikaBK, you could just not keep track of inventory at all, and instead just consider you buying raw material as an expense transaction (either to Raw Material or Cost of Goods Sold). You wouldn't be able to see the value of your remaining stock of raw materials, but you'd still get an accurate report of your profits in the end.

    I can't think of someone else on the Community who does the same work you do, so I can't recommend anyone for more help (that doesn't mean they aren't here, tho!)

    If anyone has experience to share, please do!

  • silviupsilviup Member Posts: 1


    I am trying to add journal entry for goods cost of sold items and it's says unbalance with red colour, and won't let me to save ( There was an error saving

    I am trying to get the goods cost on accounts
    u prompt help will be much appreciated

  • AlexiaAlexia Administrator Posts: 3,314 admin

    Hi, @silviup,

    It sounds to me like your journal entry isn't balanced. You have to have the same total for both your debits and credits. So here, your journal entry should debit Cost of Goods Sold and credit Inventory the same amount (which is how much that stock cost you).

    If it's still happening, could you share a screenshot of this?

  • FerdausFerdaus Member Posts: 13

    This article/discussion really suits my situation! Thanks @Alexia & @AnikaBK.

  • yogeshyogesh Member Posts: 1

    I am confused with above.
    I import some spares of different value from Europe (lets say 2 spares of EUR 250 & 750 = EUR 1000) & Sell in India.
    Now my spares each have different price. (250+750)
    I need to pay air/sea freight for this Say (INR 25000) There is clearing agent cost in local currency (INR 5000).
    Also upon receipt of order in custom i need to pay custom duty (RS 10000) & GST(Rs 20000) in local Indian currency.
    How can i account this.
    Can i distribute cost on each item in inventory based on % of value? How to do it

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