Implementing COGS in GnuCash for a small business

[David Gillam]

I'm far from an expert, so will defer to more knowledgeable people, but if I understand it correctly, you want to:

- Increase an expense account for hardware (retail) when the hardware is bought by you.
- Decrease an expense account for hardware (retail) when the hardware is bought by your customer (split transaction for same amount as hardware cost you)
- Increase an expense account for software (retail) when the software is bought by you.
- Decrease an expense account for software (retail) when the software is bought by your customer (split transaction for same amount as software cost you)
- Increase an asset account by the profit portion of the split (price - cost)
- Increase the appropriate tax-related accounts

So this can all be done as a split transaction, appropriately split as described above.  As you buy goods to sell, the expense accounts are increased.  As you sell those goods, the expense accounts are decreased (offsetting the costs).  Retained profit is accumulated in an asset account, and taxes paid by your customers are accumulated in tax liability accounts.  When you pay those taxes to the state, etc., you decrease the tax liability accounts.

David
Gillam Data Services, Inc. - Computer Training, Consulting, & Service
dave at davegillam.com | www.davegillam.com | 214-543-2788



On Mar 5, 2012, at 11:38 AM, 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
> 
> 
> 
> 
> 
> 
> 
> 
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