If your company can find other suppliers of soap ingredients that you can only spend $4 on ingredients per bath soap, then the COGS will be reduced to $6 per bath soap. Lowering COGS is one way to increase the gross profit of your company since COGS are variable costs. The ideal selling price should be at least greater than $7 to make a profit since it needs to account for both COGS and the additional indirect costs like marketing and shipping. So, your company is spending a total of $7 to create the soap. You also have to spend $1 per bath soap on the labor required to craft it and $1 for packaging. To produce a bath soap, your company has to spend approximately $5 per soap on ingredients such as soap base, fragrance, and additives. Let us say that you are selling bath soaps. It does not include indirect expenses, such as sales force costs and distribution costs.

This includes direct labor cost, direct material cost, and direct factory overheads. If they are not part of your final product, leave them out of COGS and use the general business categories, such as ''Other Miscellaneous Expenses'' or ''Supplies'.Cost of goods sold is the direct cost incurred in the production of any goods or services. Include them in COGS only if they become part of your final product. So you may have 'supplies' that are general business supplies and others that are COGS. Everything else goes outside of Inventory/Cost of Goods Sold.

Only costs directly related to the goods you sell should be recorded under the Cost of Goods Sold section. The important thing is to not enter any expense twice. The result is the amount that TurboTax will transfer to your Schedule C for COGS. It all gets added together to make up the Purchase Costs During the Year amount in the formula above. But within the COGS account, you may use the 'Cost of Purchases', 'Materials and Supplies', 'Other Costs to Prepare', or any combination that works for you. It looks like your attachment was removed, probably because it contains identifying information and this is a public forum. A cost is either an inventory (COGS) expense or a general business expense (all other expense accounts).Ĭost of Goods Sold = Beginning of Year Inventory + Purchase Costs During the Year - End of Year Inventory. Any costs entered under COGS do not get entered anywhere else on your tax return. The only costs that go in the COGS account are costs for items that you are going to resell. You will still use the advertising, office expenses, assets, supplies, and taxes & licenses accounts to enter those expenses. The Cost of Goods Sold account is only for your inventory. I'm just not sure where to enter each section. I also use CraftyBase for keeping inventory and it has given me this report to help.

Or do I mixture of the two? The 'Learn More' buttons are very vague and don't help. If so, then do I not need to enter any expenses that Turbo Tax asks about, such as Advertising, Supplies, Assets, Office Expenses, and Taxes and Liscences? I'm entering in the Cost of Purchases line item the total of cost of my materials that go directly into my finished products.īut for the Materials and Supplies and Other Costs to Prepare for Sales line items, do I enter a lump sum amount of all of supplies here? And then all of my other expenses in the Other Costs, such as shipping and fees? I understand the beginning and ending inventory amounts and that materials are different from supplies, but I am confused on the page in Turbo Tax where it is asking me for Cost of Purchases, Purchases Withdrawn for Personal Use, Labor Costs, Materials and Supplies, and Other Costs to Prepare for Sales. I'm a bit confused about entering my expenses for my business and COGS.

What kind of account is cogs