Hey guys I have a few questions regarding COGS vs Expenses. I know this is a question for a CPA but I currently don’t have one, being such a small business, I was hoping to pick your guys brains. Obviously things like QuickBooks your CRM, insurance, phones etc. are all categorized as expenses however when it comes to material are those categorized as cost of goods sold or expenses? For example ( not actual numbers just an example) if I have 3 jobs per week and I use 3 gallons of bleach per job that’s 9 gallons all week. That’s 36 gallons a month if I buy 50 gallons per month to handle my jobs and have some extra on the shelf just in case. Do I count the 36 as COGS and the other 14 as expenses? Or am I completely wrong? The reason I’m confused is I thought costs of goods sold was only what you spent to do that particular job. But as you can see whether it’s bleach or surfactant you could end up buying and storing more than you would use per month/year. Now the same would apply for equipment if you have a roof job and you purchase a 12v system is that considered a COGS or expense? I have a feeling I’m completely wrong with my examples hopefully someone can give me some insight.
COGS is easier used for manufacturing, but still works here; it’s just a little more difficult to understand. Both expenses and COGS are better viewed from a quarterly or annual standpoint, that’s how accountants will look at it.
To answer your question more directly, COGS is for your consumables used on the job. SH, surfactants, gasoline for the pump, are all COGS.
Expenses, on the other hand, are your overhead costs. CRM, accountant (get one, they’re cheap), website, marketing, website, these are all expenses.
To put it even easier, COGS will change by the size of the job. Expenses will still be the same regardless of if you got the job or not.
What do you have to buy to do a job tomorrow? That’s a cost of goods sold.
What do you have to pay even if you don’t work for the next month? Those are expenses.
Edit: this is assuming you don’t have to buy any equipment to do the job (equipment is an asset and is expensed)
Ok so if you buy SH in bulk do you just keep tract of how many gallons you use per job and Categorize as COGS for example if you buy 50 gallons and only use 40 do you still count the extra 10 gallons as COGS or is the entire 50 considered COGS?
Taxes don’t care about per job. Stop thinking of it that way. They care about what you spent each quarter and what your gross revenue was each quarter.
If you bought 50 gallons of sh and only used 40 in that quarter, and the rest became unusable, the full 50 is still going towards your COGS for that quarter
Contact a CPA, they’re invaluable. That being said, they typically cost about $90/hr. 4 hours a year is about the cost of one house wash, including driveway
HI @B16bri, @Jake_Lambert pretty much summed it up. I just wanted to offer a little more information and explain how I would do the manual entries into your accounting software.
-In dual entry bookkeeping there is always at least one debit and at least one credit. Assets (debit) = liabilities+owners equity (credit).
-When you purchase something with your debit card and enter it into the accounting software, it is making a debit to expense or COGS (thus increasing your assets) , while crediting your bank account for the same amount (thus decreasing the amount of available funds)
-So for this example let’s say you purchase 100 oz’s of SH for $100.
At the time of purchase enter into your software and it performs this entry:
Debit (COGS - Chemicals) $100
Credit (Bank Account) $100
But then you toss 10 oz’s of the product because it went bad, as SH losses it potency after being opened. So you want to put that $10 of unused product to some sort of expense account (Chemical Waste) so that you have accurate numbers. I would just change the original transaction to:
Debit (COGS - Chemicals) $90
Debit (Chemical Waste) $10
Credit (Bank Account) $100
Not sure if this is too much information or if it’s helpful. Feel free to hit me up with any bookkeeping questions.