By Nancy Owens  Copyright All rights reserved

When people tell me they have COGS, I always think of cogs in a wheel. What they are talking about, however, is the Cost of Goods Sold calculations for a business entity. During this time, I often see small business employees scurry around, a little red-faced and breathless as they try to get all the documents together for tax time. If it is a retail establishment, all this is going on from the close of business at the end of the fiscal year to be completed by the last day in January, or the next calendar month if the fiscal year ends on a different date.

Here are some tips to make things a little easier:

  1. Take the time to make room for all of the documents you need to collect. This means having a table or counter that you can stack documents on, grouping them as you go.
  2. The COGS formula is easy. It is simply the amount of money your inventory cost you. This includes manufacturing supplies, as well as stuff you purchased for resale. However, and this is where people struggle, you have to know exactly how many widgets you sold. This information could come from a hand written journal, or a cash register report. Finding this information should be pretty easy, because we are all good record keepers when it comes to counting how much money we are bringing in.
  3. The next step (some people call this the first step) is to find total number of widgets you purchased for resale during the year and add it to the number of widgets you had left over from the previous year.
  4. Now you subtract the number of widgets you sold during the year. The result should equal the number of widgets you have on your shelves. If it does, you know you are good to go and can record that dollar amount (widgets sold multiplied by price each) on your tax documents. If it does not match, you have to go looking for the mistake, which means you have to take another physical inventory count and re-run your sales figures.
  5. Do not panic if you have an error. Usually it is in the physical count, but it could also mean a lost or miss-filed invoice.
  6. How to make it easier next year. Consider upgrading to an accounting program like Quick Books, or even just spreadsheets in Excel. When inventory arrives, check the count before the vendor leaves. Enter the count and cost per item into your inventory system faithfully. Enter each sale at the time of the sale. This way, at the end of the following year, you can just do your physical count, and run your reports and let your system do the calculating.

Image / Photo Credit: Nancy Owens

2 thoughts on “Cost of Goods Sold, or the Dreaded COGS

  1. One thing is one of the most typical incentives for applying your credit card is a cash-back or rebate supply. Generally, you will get 1-5 back for various expenses. Depending on the credit card, you may get 1 again on most acquisitions, and 5 back on purchases made using convenience stores, gas stations, grocery stores along with ‘member merchants’.

  2. For those of you who have small manufacturing businesses, such as furniture making or other creative outlet, figuring the costs of goods sold will be a little more complex as you have to track how much you use of each type of material used in the construction of the item. Then, figuring the cost to produce for each type of material used. Be sure to account for waste materials, such as cloth remnants, or other types of materials. For example: It may take only 3 square feet of cloth to make each item, but due to the size of the roll of cloth and the shape of the pattern, you might need to use 4 square feet of cloth for each pattern piece.

    Happy Accounting,

    Nancy

Leave a Reply

Your email address will not be published. Required fields are marked *