Implementing COGS in GnuCash for a small business

[Wiliam Colls]

On 03/05/2012 12:38 PM, WayneM wrote:
> I've been through the documentation, help files, FAQs, and this list and have
> gained some ideas (from a newbie accounting perspective) that COGS is doable
> in GnuCash. (Indeed it seems strange that COGS isn't in the basic business
> accounts that I chose on startup since so many businesses would seem to have
> some sort use for COGS.)
>
> BTW, my prior business ran on MS Money. For this fresh start I'm thinking of
> abandoning the MS Microsoft Money "Sunset" edition. I have no need to carry
> over any accounts, etc.
>
> I have set up a COGs high level account in a "sandbox" which I read about in
> some other messages. I have entered just a couple amounts and will be
> starting with a fresh GnuCash file. In the COGs account I would have sub
> accounts that will relate to my expenses as they are reflected on the US tax
> form Schedule C. I'm OK with the theory I think, it is the practice where
> I'm at a loss, so I'll use an example and see if I have this right. It seems
> there are a couple ways to do this and I'd appreciate other's experience.
>
> Situation. . .A single business credit card charge contains items for both
> computer hardware components and software for a custom system for a client.
> I want to split hardware and software for my purposes. (Note that I have a
> "reseller license" and generally do not pay tax on items for resale. Those
> taxes are collected and paid to the state later.)
>
> Option A.) So I enter the total charge and split between two sub accounts
> under COGS. This would seem to pose issues (and confusion with me) with
> double-entry accounting,  as I need to figure out how to 'balance' the COGs
> accounts??
>
> Option B.) I enter the charge amount under Expenses, split into the
> appropriate sub accounts. Something like Software (Resale) and Hardware
> (Resale). I would also have Hardware and Software sub accounts for the
> business, not for resale. and as needed create a custom Tax Report for my
> Schedule C that I will use when filing?
>
> or. . .
>
> Option C.) ?????
>
> I don't need the ability to do an in depth financial analysis of a very
> simple business. I just want some simple, clear, and proper books.
>
> Thanks in advance. . .and I think some others with COGS questions will
> benefit from your insights.
>
> Wayne
>

May I respectfully suggest the following accounting transactions:

On purchase of the items:
                                               Debit        Credit
Liability - Accounts Payable - Credit Card                 100.00
COGS - Hardware                               50.00
COGS - Software                               50.00

On sale of items to customer

Asset - Accounts Receivable                  200.00
Income - Hardware                                          90.00
Income - Software                                          90.00
Liability - Sales Tax Payable                              20.00

When Customer Pays

Asset - Accounts receivable                               200.00
Asset - Bank                                 200.00

I am not an accountant by profession, but I have a lot of experience 
with setting up Accounting systems, accounting in small businesses.

HTH.

William.
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