COS stands for Cost of Sales (sometimes also referred to as COGS, or Cost of Goods Sold). The COS account keeps track of how much it costs to make and sell your goods/services as they are sold. This helps to calculate profit: what you really made from your sales after you take into account what it cost you to buy the goods you sold.
Here is an example: Let's say you manufactured (or purchased for resale) a pen for $0.50 and sold it to a customer for $1.00.
Your revenue is $1.00 since this is what you sold the pen for.
Your cost of goods sold is $0.50 since this is what you paid for the pen.
Your profit is $0.50 or the difference between what you sold the pen for and what it cost you.
Cost of goods sold is recorded when you sell something you paid for, so that you can calculate the profit at the same time. Knowing how much you actually make from selling your goods is important for your business because it's from your profit is that you can pay for other business expenses and build your company AND it helps you know if you are selling your goods at a price that can sustain your business - are you making enough from the sales of your goods to stay in business?
WorkingPoint has set up COS accounts for you, including subaccounts for Labor, Materials & Supplies, and Shipping for you to use to track what you purchased for resale. We have also set up a protected account called Cost of Goods Sold. WorkingPoint uses this protected account to track the cost of goods sold for items you hold in inventory that you have sold.
To come up with the value of your inventory at time of sale, WorkingPoint uses the Weighted Average Cost to calculate the value of your inventory. The average cost is calculated by dividing the total cost of the inventory items you currently have in stock by the total number of units for sale. After you enter a sale, WorkingPoint adjusts your cost of sales by multiplying the quantity sold by the average cost of each item.
Common COS Questions:
What happens if you buy more of an item and the cost is different?
When you record a purchase of more units of an inventory item, WorkingPoint recalculates the average cost of the item. It adds the cost of the new items to the cost of the old stock and then divides by the total number of new and old items.
What happens if you accidentally break an inventory item? How does WorkingPoint account for that?
When you break something, it affects the COS of an item because you now have fewer of the item, but it still cost you the same. When you make an adjustment for the broken item, WorkingPoint recalculates the average cost.
Have several sources of revenue?
You can create a COS account for each revenue source/account to easily view profitability per revenue source on your Income Statement.