Mind if I ask why you would want to?  Logic normally is that if you don't have anything, it didn't cost you anything.  COGS = Cost of Goods Sold.

Only that I am a new user and if we had to quote the part quickly, I thought we would look up the cost in Sage 50.

Ok, in Sage 50 terminology, that's not COGS, that's the last/average individual cost of an item.  COGS is more the total of all of an item in stock or the cost of all the items that were sold on an invoice.  So if you have 10 in stock or sell 10 of an item on an invoice worth $10 each, your COGS or total cost is $100 but the cost of an individual item is $10.  It sounds like you want to know the $10.

Unfortunately, the last or average cost of an item is not updated until you actually make a purchase unless you have the Quantum version.  You might want to play with using one of the Additional Info fields for the expected cost as well as using one for the preferred vendor name.  You could add it to the report as well.

If you start a Purchase Invoice, Purchase Order, or Purchase Quote, and put in the item number, the last purchase price will be auto-filled for that item.

So if you're working on a customer quote, you can open the Purchase Quote / Order screen above or beside, and double check your pricing.

I'm not sure if it's possible in the Pro and Premium Editions, but in Quantum we set up a 'Last Onhand Cost' price and periodically use the price update tool (Setup | Settings | Inventory | Price List)  to update 'Last Onhand Cost' from Last Cost.    

Then anyone doing a quote or invoice can click on the recommended price and see the prices, including the last or PO cost.

As Richard explained, the Inventory List and Inventory Item record only show what's in stock right now, so it's no help when an item is out of stock.

*******************************************************************************************************************

Sage 50 stores:

OnHand Value (Cost) and OnHand Quantity for each Warehouse Location

Last Cost    for each location  

Last Purchase Price  for each location

and in Quantum there is an option to store and report on:

Last Quoted price from each Vendor

Last Purchase Price from each Vendor.

Randy

Good idea to use a customer Price list to store the cost.  He can then look it up right in the Price field of a customer quote, order or invoice.  I should have thought of it.  I guess I'm getting old.

I don't mind getting old, it beats all the known alternatives!

Great advice guys. I am using Premium. Here is another problem: When I run a report to see our sales vs our costs, it's not accurate because many items do not have a COGS. How do I run a report showing my true transactions?

If COGS is not part of the original entry, it will not show up on any report on an entry by entry basis.  You will have to use the income statement or run the reports from the inventory perspective (probably the Transaction Detail report).  However, you will not see any direct relationship of cost to an actual revenue amount.  I'm going from memory here but I do not think the Vendor or Customer names can be put on that report either.

I'm not sure what you mean by "If COGS is not part of the original entry". Can you explain that. I think we don't have the system set up properly and would love to get this cleared up.

What we want is for the actual costs of the items we purchased for the customer to be forever linked to it. The goal is to get accurate reports of how we are doing overall and with specific customers.

Thanks in advance,

Mike  

If you follow the normal course of events in a typical business, the items are purchased, received, entered into the system and then sold.  If you want to track inventory, you must use inventory items.  If you use inventory items in purchases and sales in the order I suggested, then there will be a cost associated with each entry.

You haven't told us how you are doing the data entry (or as you say, "don't have the system setup properly") so that the above doesn't happen for you.  However, one way it can happen (eg. COGS will not be part of the sales entry), is to sell an item before you record any purchase.

We are holding off on the receiving until we get the supplier invoice with the final costs. So are doing what you described above with the exception of shipping inventory before we receive it in Sage. Could this be it?

It depends.  You have not told me what stage you are at with your data entry and your business.  I would say yes, if you have never posted a purchase invoice for those items.  Look up the sales invoices and see if the journal entry shows the costs moving from the asset account to the expense account.  I would suspect it is not there in the journal entry.

I haven't double-checked this in a few years but I believe if you have posted a purchase entry in the past, then even if you do not have any stock when you sell an item, the last cost will be part of the sales entry as the cost.  If that cost is different when you finally post the purchase invoice, there will be a variance entry to balance the true costs of items left in stock.

This variance concept is a more complex part of inventory management so if you are not sure of what this means, then I would suggest you take a copy of your file, post some entries in the copy and look at all possible reports after each entry so you can see what is going on.  Change the order of the entries (eg. create an item, post one item sale first, look at reports, post purchase, look at reports, then create another item, post a purchase, look at reports, post a sale, look at reports, then make there is no stock on one item, post a sale, look at reports, then post a purchase for a different cost, look at reports, etc.).  Do not always use the quantity of 1 for both the purchase and the sale.  Make sure there you do everything over again with quantities that are larger than 1 unit.  When you see a purchase invoice posting an entry to an expense account when only a properly set up inventory item is on the invoice, you probably have a scenario where a variance has been posted to balance the asset account to the proper cost of what is left in stock.

This exercise will help you understand what is going on in the background.  Set aside some time where you won't be interrupted and track it on paper.  Setup the entries before you start on paper and record what you expect to see by recording the cost and/or revenue at each point.  Then post the entries and see if you get what you think.  If not, then try to figure out why.

Norlite Mike said:

We are holding off on the receiving until we get the supplier invoice with the final costs

If you use Purchase Orders, and record incoming goods when they cross your door, and hold your vendors to the price(s) they promise as much as possible, you'll sort out nearly everything.

Provided 'negative inventory' is replenished during the financial year, the accounting system will give the 'right answer' for the income statement and balance sheet.  

But the costing for individual invoices will be a hopeless mess.

Norlite Mike said:

What we want is for the actual costs of the items we purchased for the customer to be forever linked to it

That is sort of how QuickBooks works.

Sage 50 uses actual amounts, and they're calculated as you go, from what has already been recorded. 

Hello All,

I am still having problems with COGS. Some items do have a value (COGS) and some don't. I went into the Training module and picked an item that did not have any COGS and had a negative quantity in inventory. I purchased 25 of that item with a unit price on the PO and converted it to an invoice. I have plenty of inventory but still no COGS. I'm in the Training module in single user mode. How do I get the cost from the PO to stick to the part? In Inventory & Services Ledger under the Stats tab, there is no value for COGS.

We often have negative quantities until all the receiving is done. That is a reality for now.

Also some of my parts have a Variance COGS Account. I can't figure this out.

Thanks,

Mike

I fooled around with it a bit more and I was able to get a COGS after I invoice a customer order in training mode. I now know that if you do not have any sales on a particular part, you wont have any COGS. The same goes if you do not have an inventory of that part.

I want to be able to look at my sales for a period and see the margins we made for each order or item sold. This is what is bothering me, I can't get this info.

If you enter a sale of an inventory item that has a current on hand value per item of zero, the COGS will be zero.  The moving finger writes, and having writ...   The accounting for the sale transaction is never revisited.  It is past history.

When replenishing 'negative inventory' from a purchase, there may be a Variance adjustment.  This Variance account and adjustment is used when the purchase price is different from the on hand cost that the item was sold at.   It will NEVER affect a past sale transaction.  Past accounting transactions are never altered when recording future events.

If you have an item with a cost on hand of zero, but a quantity of 10, it doesn't matter whether you sell 10, 1000, or 1,000,000,000.  It doesn't matter if the selling price is $1, $100, or $1,000,000.   The total COGS recorded will be based on the cost on hand, so it will be zero.

If you later purchase some of that inventory that is sitting at a negative quantity, the transactions related to the original sale will be unaffected, but to balance the books, variance transactions while in the negative quantity are immediately posted to the G/L (but not to the sales that made the inventory negative, because existing entries are never altered).

Sage 50 is designed to allow invoicing before the system is completely set up, because you have to start somewhere, and invoicing is a good place to start collecting information.  (If you don't have a list of inventory, you can add items as you sell stuff, and at the same time, collect item numbers, descriptions, selling prices, etc.)  

So if you allow negative inventory and record sales before you record purchases, the G/L balances will usually be correct, as long as the timing is correct, and the financial reports will be correct.   (by timing, I mean getting the transaction dates right so that the matching is right.)

But, sales margin reports won't make sense, because they're missing chunks of the cost data.  You'll have the correct sales and receivable information, but the COGS column on sales reports willt be Garbage Out.  

Ok. Thanks so much for the explanation. Is there anything I can do to make the reports valid? Or is it because I ship goods before the Purchase Orders are received that is the problem? What does everyone else do?

I can't speak for everyone, but we:

- Started received inventory as it arrived, from packing slips, at PO prices, using 'PS-xxxxxx' where the xxxxxx was our original PO number.    It's best to uncheck 'Invoice received', since this will generate a warning if someone tries to pay the received item that hasn't been invoiced.

- Started pushing all our vendors to email invoices, because (in theory) we should get priced invoices before the goods arrived.

- For goods received earlier than invoice, we open the invoice, mark the 'Invoice Received' checkbox, and

- Sped up invoicing by having the right information in our inventory system.

- Entered adjustments to correct inventory quantities on hand.

- Shut off 'Negative Inventory' so as to prevent selling items under the wrong item code (and price).

Flies in the ointment:

- Vendors who do multiple shipments from one PO, then wait to 'close' our PO, then invoice all 5 shipments and a return on one invoice.   We had to start posting PS-xxxxxA, PS-xxxxxB, PS-xxxxxC, etc. as 12345-01, 12345-02, 12345-03, etc.

This more or less works to record receiving goods, except that Sage 50 has a few bugs that prevent adjusting some invoices when the goods have been sold.  (there is a bogus error message about leaving the quantity below zero).