![]() ![]() Step 5: Once you have your total COGS amount for the month, enter that value into your accounting system by pulling your total amount of COGS for the month from where you had it “parked” in your Inventory Asset and placing it into COGS. Steps 3 and 4 when calculating COGS in your e-commerce business Other miscellaneous fulfillment costs (normally not FBA fees). ![]() Factory cost (invoice total divided by number of units).Make sure Per Unit Cost includes the following: Step 1: Create a spreadsheet listing each SKU in Column A and a Per Unit Value for that SKU in Column B. Many e-commerce sellers complain that accounting for COGS is one of the most confusing aspects of keeping their business’s books. You would only count the money you paid for that truckload of inventory as an expense in November when you begin selling each SKU. For example, say you purchased a truckload of products in October, but you didn’t actually begin selling those products until November. Quick tip: The most important thing to note about accrual accounting is that, when it comes to keeping your books, spending cash doesn’t necessarily equal incurring an expense when it comes to your business bookkeeping. However, most accounting professionals prefer sellers use this form of accounting because it allows for greater visibility into your business’s financials. The con of this method is, of course, that it’s more difficult to do than simply tracking each expense in the month that you write the check. The pro of using accrual basis accounting is that you have up-to-date visibility into the actual financial health of your business. This more hands-on method requires you to “park” your goods in an Inventory account in your bookkeeping software until you actually sell the goods. In accrual basis account, rather than counting inventory purchases as an expense the month you purchase them, you expense the items you’ve purchased as you sell them. All the while, you may be somewhere in between, but you simply won’t know! Which brings me to… Accrual Basis Accounting While in months where you don’t make any inventory purchases you may feel that your business is insanely profitable. In months where you make large inventory purchases, cash basis accounting may make it look as if you lost money. ![]() However, the con of cash basis accounting is that you end up with terrible visibility into your actual profits. In your bookkeeping, you would expense this $10,000 right away. For example, say you pay a vendor $10,000 for 1,000 units of an item. The pro of cash basis accounting is that it is the simplest type of accounting. There are two ways to determine your COGS, and each have their pros and cons. Quick Tip: It’s important to understand that COGS is all about costs you incurred relevant to obtaining each piece of inventory and is not associated with overhead expenses for your business (such as office space rental, office supplies, or even shipping products to customers.) How to Calculate COGS And who doesn’t want a clear picture of your gross profit? This is important when it comes to making further business decisions, such as determining if you are pricing your SKUs high enough to turn a profit. When you calculate your sales for a given month and then subtract your COGS for a month you are left with your gross profit.
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