How to Handle Cost of Goods Sold

"Cost of Goods Sold" is a term that refers to what you paid for the items you sold in any given period of time (typically monthly).

Determining your costs is a critical factor in determining your profitability. Obviously, this needs to be dealt with precisely if you want accurate and meaningful financial reports. This would be simple if you always bought things for the same price. Unfortunately, this is seldom the case. For instance, what you pay for any given product may change several times during the same month (propane is a good example of this). However, these cost changes need to be reflected in your Cost of Goods Sold accounts.

Typically (but not necessarily), calculating your Cost Of Goods Sold is necessary only if you are using Lynx as a complete accounting system, including the preparation of your Income Statements and Balance Sheets. If you are using the system ONLY for Accounts Receivable and Invoicing related functions, calculating Cost Of Goods Sold probably does not apply.

 

It usually doesn't make sense (nor is it cost effective) to apply the same stringent methods of costing to your smaller items as it does to propane. Therefore, Columbus Systems recommends that you use the following three different methods to determine your Costs Of Goods Sold.

  1. Propane . . . Usually handled as either one product or categorized (such as Residential, Commercial, and Agricultural). The Cost Of Goods Sold is based on Weighted Average Cost calculations. Go to Cost of Goods Sold for Propane for help on this.
  2. Large Items . . . Typically items that sell for over $100 (such as stoves or tanks).  The Cost Of Goods Sold is based on the actual cost. Go to Cost of Goods Sold for Large Items for help on this.
  3. Small Items . . .  Typically items that sell for less than $100 (such as fittings).  The Cost Of Goods Sold is based on markup percents. Go to Cost of Goods Sold for Small Items for help on this. 

 

Once you have determined what your Cost Of Goods is, they can be directly entered into the system at either the Product or Price Code level of detail. Go to Set Product Cost on Products or Set Product Cost on Price Codes for help on this.