Should You Use Cost of Goods Sold in Your Small Business Bookkeeping?

If your business sells products or bills clients for materials alongside your services, Cost of Goods Sold (COGS) may be an important addition to your bookkeeping setup.

An Example That Makes It Clear

Let's say you install a dishwasher — you purchase the dishwasher and charge your customer for it (with or without markup) along with the installation charges. When you look at your Profit & Loss statement, your income looks inflated and your expenses look really high — not because they are, but because your purchase of the dishwasher is not clearly deducted from your sale of it.

If you use Cost of Goods Sold, your income reported before overhead expenses is much more accurate, giving you a strong grasp of the actual cost of doing business.

Who Should Use COGS?

Cost of Goods Sold is most useful for businesses that:

• Sell physical products and purchase inventory
• Buy materials or supplies that are directly tied to a specific job or project
• Bill clients for subcontractors as a pass-through cost

Service businesses that have no direct costs tied to individual jobs often don't need COGS — all expenses flow through operating expenses instead.

How Christine Can Help

Setting up Cost of Goods Sold correctly in QuickBooks Online requires understanding your business model and ensuring transactions are categorized properly going forward. I would love to help you set this up so your financial reports give you an accurate picture of your profitability.