V9 - Accounting concepts for inventory

How SOS Inventory handles accounting for items depends on the item type, the valuation method you use, whether the items have been shipped, and the types of transactions involved.

Accounts needed according to item type

Item type	How used	Income	Asset	COGS	Expense	Note
Inventory	Items purchased and marked up for sale.	X	X	X	X	Standard items.
Inventory	Finished goods output of process transaction.	X	X	X	X	Standard items.
Inventory	Raw materials purchased for manufacturing.		X	X	X	Standard items.
Non-inventory	Physical items not tracked.	X			X	Expense for purchases, income if sold.
Service	Fees, shipping, advertising, etc.	X				Used only in sales.
Expense	Fees, freight, VAT taxes, etc.				X	Used only in purchasing.
Service/Expense	Used in manufacturing bill of materials.				X	Must have cost to add value to built product.
Service/Expense	When fee item can be used on both purchasing and sales.	X			X
Kit (Item group)	Items packaged together as a unit.	X				Need income because it is sold.
Category	For grouping items only.					Categories do not have accounts.
Assembly	Finished goods output of builds.	X	X	X	X	Income for sale, asset to hold overall value of build, COGS/Expense to transfer value of sale.
Assembly	Sub-assembly used for upper-level assembly build.		X	X	X	Asset to hold value, COGS to show cost in BOMs.
Labor	Labor unit for worker.				X	Used in manufacturing.
Overhead	Utilities and property.				X	Used in manufacturing.
Other	Used for anything else.					No accounts assigned.

Cost basis and inventory value

The cost basis of an item is the total value of an item that you have on hand. This is the aggregate cost that you paid for the units you have on hand, as calculated using your chosen valuation method. You can alter the cost basis of an item, if necessary, by creating an adjustment (Operations > Inventory > Adjustments).

SOS values inventory at its purchase price. So if you buy $3,000 worth of raw materials, you have $3,000 worth of material in inventory.

infoNOTE: If you have in stock 10 units of an item that were purchased at $10 each and later purchased 5 units at $5 each, how do you determine the per unit value of that item when it is sold? SOS Inventory allows you to value your inventory using either FIFO (First-In, First-Out) or weighted average. If using FIFO, the per-unit value is based on the oldest item from the above example and would be $10. If using weighted average, the value of the item would be $8.33. If you are unsure which method to use, please contact a qualified accountant.

Posting of items to cost-of-goods-sold (COGS) account

SOS posts to the cost of goods sold (COGS) account of an item when that item is shipped (included on a shipment). Invoices and sales receipts do not generate COGS entries in SOS. If you are tracking inventory in QuickBooks Online, do not turn off the Post COGS to QuickBooks setting (Tools & settings > Configuration > Connections > QuickBooks) until you have met with Support.