Cost of Goods Sold

by Denise
(Ottawa, ON)

I recently took a job cleaning up books for a Canadian corporation. And cleaning is an understatement! However in good spirit and in a desire to learn, I have taken the challenge. Here is what I need help with...

For cost of goods sold (COGS), let's say the customer buys a pillow (that's the product) and they want us to mail it to them. Is the shipping cost recorded to COGS or is it an expense?

The second question. I am new to COGS. How do you know what's considered COGS? Specifically, one of the things they sell are paintings (the wife paints them), so are the paint and paint brushes recorded to expense or to COGS?

Thank you everyone for your help !!

Cheers :)

Hi Denise,

I haven't worked with inventory for awhile but I'd say the cost of mailing the pillow to the customer is a selling cost and not a cost of producing the product.

If the shipping cost related to receiving the product or components to get it ready to sell, then I'd say that would be a cost of goods sold.

If you use QuickBooks, you can assemble a product. Therefore all the components that went into making the painting available for sale would be tracked and placed into sale as one product. This means the artist's (in this case the wife) time would also be tracked ... that is if she is working for the business.

Check out Jennifer Thieme's article titled "QuickBooks Inventory Assemblies - Creating Them is a Two Step Process" at ezinearticles.com> Business> Accounting. (Just type the title of the article in the search box to locate it).

If the artist has her own business and is selling the painting to the business, the paint and brushes would be her expense, not the business's expense.

Hope this helps.