[dronai]

My materials purchased were always listed as an item and under the expense account. This year my accountant changed this to "Cost of Goods Sold" instead.

When issuing a PO, if I use the item materials, its saying this item is associated with a income account ? Before I ask the accountant, what account is showing under item with your accounting software ?

 

[yrman]

We associate any materials purchased with the job they are for. I am assuming that is what you mean for the income account. It could also be a big income bucket like "sales" or "installations" etc.

As you know (or for those who don't)
There are 2 different categories of profit
Gross profit which is what's left after "cost of goods" (also called your direct costs) which is materials, permits, equipment and labor for the work. This is also supposed to include the labor burden only for the labor for the workers doing the project. Not office staff etc. The burden is payroll taxes, workmans comp and benefits for the "cost of goods" labor only.

The gross profit left after direct expenses is sometimes referred to as "above the line".

Below the line is all the rest of your expenses and overhead. The net profit is what is left after all of that.

I'm not an accountant but hope this helps. It was confusing for us but breaking things down so you really understand where money is coming from and going to helps so much.

 

[rewire]

The Cost of Goods Sold account is added to your chart of accounts the first time you add an inventory item. QuickBooks uses this account to track how much you paid for goods and materials that were held in inventory and then sold.
While an item is held in inventory, its value is tracked in the Inventory Asset account, which is also added to your chart of accounts when you create your first inventory item. As soon as that item is sold using an invoice or sales receipt, its value is taken out of the Inventory Asset account and put into the Cost of Goods Sold account.

 

[dronai]

The Cost of Goods Sold account is added to your chart of accounts the first time you add an inventory item. QuickBooks uses this account to track how much you paid for goods and materials that were held in inventory and then sold.
While an item is held in inventory, its value is tracked in the Inventory Asset account, which is also added to your chart of accounts when you create your first inventory item. As soon as that item is sold using an invoice or sales receipt, its value is taken out of the Inventory Asset account and put into the Cost of Goods Sold account.

I don't keep inventory. My purchases are "non inventory" I think I got the answer I was looking for from QB support. I have an item that is listed on the sales invoices and the PO's, so that prompted the software to ask that I was using an "income" account for the PO.

 

[dronai]

We associate any materials purchased with the job they are for. I am assuming that is what you mean for the income account. It could also be a big income bucket like "sales" or "installations" etc.

So do I. Read what I wrote Rewire