[GNC] Business Income Statement: manipulating Cost of Goods sold

[Adrien Monteleone]

My first exposure to Income Statements (dubbed P&L in this case) was in 
the restaurant industry. Many of those businesses also put COGS as a 
'top line' expense.

But note, it was never part of the Income section. The organization was 
something like:

Revenue
   Gross Sales
   Discounts & Allowances
Net Revenue

   Cost of Goods Sold
   Labor & Salaries

Gross Profit

   Other Expenses

EBITDA

   Interest
   Income Tax
   Depreciation

Net Profit

The Income section ended at Net Revenue. COGS & Labor were top-line 
expenses for several reasons but the main two were to have them stand 
out since as the largest controllables, and to isolate the remaining 
expenses for the owner to focus on the rest as 'fixed costs'. (though 
many of them were of course somewhat controllable) EBITDA was what 
management focused on as their 4th target. (Gross Sales, COGS & Labor 
being the other 3)

What you see above, and what you seem to be looking for is a P&L used in 
'Managerial Accounting'. There are other forms of this same report used 
in other industries. For example, some are organized by Department or 
Cost Center.

But in any case, the organization of the Chart of Accounts does not 
change to match presentation. Accounts don't magically switch from 
Expense to Income simply because you want to move them around on the 
report page. Accounts belong where they do because of the nature of what 
they are recording.

Regards,
Adrien

On 12/9/23 5:40 AM, Eric Chapman wrote:
> Thank you, Adrien.
> 
> I knew it was a presentation issue, and was trying to figure out how to 
> present it correctly and yet be able to use GnuCash as I *wanted* to :)
> 
> I also realize the importance of the inventory accounts and the theory 
> behind this. I just know that the amounts and number of transactions are 
> minuscule at this point, so I was trying to cut corners. Maybe not a 
> good move. Second smiley :)
> 
> I was surprised that GnuCash limits the user's ability to debit an 
> income account from the Accounts Payable section, so I guess that was 
> where I scratched my head and wondered… No biggie. I suppose that 
> feature is intended to prevent inadvertent debits to income accounts, 
> which I can understand. I can deal with that limitation (feature) in 
> GnuCash. And I may just go back and re-do those few transactions with 
> inventory accounts.
> 
> I agree that COGS is an expense account. But as far as I know it is 
> either usually or always presented in the income section of the Income 
> Statement, not in the expense section. I would have thought, though, 
> that the "Income" or "Expense" attribute would be irrelevant to *where* 
> something is presented: *I expected the parent-child hierarchy of the 
> Chart of Accounts would control presentation*. I only marked the COGS 
> accounts as "Income" after finding out the parent-child hierarchy is 
> *not* the deciding factor in presentation, since I perceived that the 
> "Income" attribute would put them in the income section of the Income 
> Statement. I'm sure it makes sense from a programming perspective since 
> the storing of data under the hood should not be determined by possible 
> reporting desires. I probably won't put in the effort to learn Scheme – 
> as much as I'd like to. Not enough time available for the benefit.