How to Record Cost of Goods Sold in Found Bank

What cost of goods sold means in Found Bank

Cost of goods sold (COGS) is the direct cost to produce the goods your business sells — materials, labor, manufacturing overhead. In Found Bank, you record COGS to match your revenue to the actual cost of creating what you sold, which gives you an accurate picture of your profit margin.

Found Bank treats COGS as an expense category separate from operating expenses. When you sell something, the revenue goes one direction and the COGS goes another, so your reports show gross profit (revenue minus COGS) before you subtract rent, salaries, and other overhead. This separation matters because COGS changes with sales volume, while many operating expenses stay the same.

The timing of when you record COGS depends on your accounting method. If you use accrual accounting, you record COGS when you make the sale, not when you pay for materials. If you use cash accounting, you record it when you actually pay. Found Bank supports both, but most businesses with inventory use accrual.

Key Takeaways

COGS in Found Bank is recorded as an expense that reduces your gross profit, separate from operating expenses like rent or salaries.
You record COGS at the time of sale in accrual accounting, or when you pay in cash accounting — Found Bank lets you choose which method to use.
Found Bank's chart of accounts includes a COGS account by default, but you may need to create sub-accounts if you sell multiple product lines.
The most common mistake is mixing COGS with operating expenses, which inflates your cost of goods and hides your real profit margin.

Where to find and set up the COGS account

Found Bank creates a COGS account automatically when you set up your business. You can find it in your chart of accounts under the expense section — it usually appears as "Cost of Goods Sold" or "COGS" depending on your industry template.

If you sell more than one type of product or service with different cost structures, you can create sub-accounts under the main COGS account. For example, if you sell both physical products and services, you might create "COGS — Products" and "COGS — Services" as separate line items. This lets you track which part of your business has the healthiest margin.

To add or modify COGS accounts, go to your chart of accounts settings. Found Bank lets you rename the account to match your business language, but keep it clearly labeled as COGS so your accountant or bookkeeper knows what it is.

Recording COGS when you make a sale

The most direct way to record COGS in Found Bank is through the invoice or sales transaction itself. When you create an invoice, Found Bank lets you tag line items with a COGS account. If you sell a product for $100 that cost you $40 to make, you enter the $100 as revenue and the $40 as COGS on the same transaction.

If you use Found Bank's inventory feature, the system can automatically pull the cost from your inventory records and post it to COGS when you mark an item as sold. This reduces manual entry and keeps your inventory value in sync with your COGS.

If you do not use inventory tracking, you record COGS manually by creating a journal entry that debits the COGS account and credits your cash or accounts payable account. This is slower but works if you have a small number of sales or irregular costs.

The difference between COGS and operating expenses

The line between COGS and operating expenses matters because it changes how your profit looks. COGS is only the cost directly tied to making or acquiring the product you sold. Operating expenses are everything else — your rent, your accountant's fee, your marketing spend, your office supplies.

A common mistake is putting all business expenses into COGS. If you pay a $500 monthly subscription for your point-of-sale system, that is an operating expense, not COGS, even though you need it to sell. If you pay $200 for packaging materials that go directly into the box with your product, that is COGS. The test is: would this cost exist if you did not make this specific sale?

Found Bank separates these on your profit and loss statement so you can see your gross profit (revenue minus COGS) and then your net profit (gross profit minus operating expenses). This separation helps you understand whether your pricing is right and whether your overhead is under control.

Adjusting COGS at the end of the accounting period

At the end of each month or quarter, you may need to adjust your COGS to account for inventory that did not sell. If you bought $1,000 in materials but only sold $700 worth, the unsold $300 stays on your balance sheet as inventory, not as COGS.

Found Bank's inventory module handles this automatically if you use it — when you receive materials, they go to inventory; when you sell them, they move to COGS. If you track inventory manually, you record an adjustment journal entry that moves the cost of unsold goods out of COGS and back into inventory.

You may also need to adjust for shrinkage, damage, or obsolete stock. If you discover that $50 of inventory is damaged and unsellable, you record that as a loss by debiting COGS and crediting inventory. Found Bank lets you create a separate "inventory loss" account if you want to track these separately from normal COGS.

Connecting COGS to your tax return

The COGS figure you record in Found Bank flows directly to your tax return. On a Schedule C (sole proprietor), Schedule 1120 (corporation), or Schedule K-1 (partnership), there is a line for cost of goods sold. The IRS uses this number to calculate your taxable income, so accuracy matters.

The IRS has specific rules about what counts as COGS for tax purposes. Direct materials, direct labor, and manufacturing overhead count. Selling expenses, administrative salaries, and rent on your office do not. Found Bank does not enforce these rules — that is your responsibility — but keeping COGS separate from operating expenses makes it easier to get it right.

If you have questions about whether a specific cost is COGS for tax purposes, ask your accountant or tax preparer before you record it. It is easier to fix the account before tax time than to reclassify everything later.

Frequently Asked Questions

Can I use the same account for COGS and inventory?

No. Inventory is an asset on your balance sheet; COGS is an expense on your profit and loss statement. They are connected — when you sell inventory, it becomes COGS — but they are separate accounts. Found Bank keeps them separate for this reason.

What if I do not know the exact cost of what I sold?

You can estimate COGS based on your average cost per unit, or use a standard costing method if your products are similar. Found Bank lets you record an estimate and adjust it later when you have exact numbers. Document your method so you can explain it to your accountant.

Do I record COGS if I sell a service, not a product?

Service businesses usually do not have COGS in the traditional sense because there is no inventory. Instead, you record direct labor and materials as operating expenses. Some service businesses create a COGS account for subcontractor costs or materials that are directly tied to a specific job.

How often should I review my COGS in Found Bank?

Review it monthly when you close your books, or at minimum quarterly. Compare your COGS as a percentage of revenue to previous periods — if it jumps unexpectedly, investigate whether your costs changed, your pricing changed, or your recording changed.

What if I recorded something as COGS by mistake?

Create a reversing journal entry that debits the correct account and credits COGS. Found Bank lets you date it to the original transaction date so your monthly reports stay accurate. Keep a note of why you reversed it in case your accountant asks.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.