Chart of accounts cogs3/17/2024 Sometimes, clients use a COGS account as the wash account. The ‘preferred’ method of tracking these costs is through a sub-account within the Inventory Asset account group. This allows the debits and credits to be tracked together on the Balance Sheet for easier reconciliation. However, you’ll need to use a clearing, or ‘wash’ account to track the ins and outs that are ‘feeding and bleeding’ the account. As in the case of recording the cost from an outsourced vendor, then transferring that cost through the service item into an assembly.įor example, say your client sends out the raw materials to be assembled by a contractor who charges $5 per unit. Once the clearing account is setup, you will setup a Service-type item with the Expense account posting to it, and post $5 in the Cost field. When they get the contractor’s bill of $1,000, you or your client will post it to the clearing account. As the client builds their assemblies, $5 will be removed from the clearing account for each service unit used as part of the build. What about tracking labor in the assembly builds? Here, you can setup service-type items to track those costs, and then the costs can be rolled up into the cost of the finished goods. In this case, the cost will be posted against a COGS account because it is a service supplied by an outside vendor. The Income account may or may not be used, depending upon the item’s use in a sales document. Take note of the fact that when checking the box, the wording went from ‘Account’ (which is confusing) to ‘Income Account.’ Warning: when you first go to setup a Service-type item, by default, it opens up a ‘one-sided’ item window. The ‘one side’ being the revenue side: The client may want to have items setup for services they purchase (usually called, ‘outsourcing’) or service items they are charging their customers. In either case, you need to make sure the items are ‘pointing’ to the right accounts. Many times, clients go overboard on the Income and COGS accounts, and they want to break out every product group (or even every product) to its own account! Don’t let them do that. It only makes the P&L longer and harder to read, and doesn’t really add any analytical vale.
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