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Okay, I’ll start. Simple version. I keep an Excel Spreadsheet that keeps track of purchases and sales. I assign a SKU to each and every item with the date of purchase, price and when first published (listed). The spreadsheet keeps an ongoing balance of my inventory. COGS = beginning inventory balance, plus purchases, minus ending inventory balance.
The long version… it’s just that… Long.
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Just curious: can you give us an idea of the volume of items you’re keeping track of each month or year?
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After roughly 18 months, run rate of slightly above 3.3k. On a weekly basis it varies. Bulking up on stock for a new venture that I’m kicking of after the first of the year as well as going through a relocation to a place that sourcing is not that abundant. In this case, items are stored in a storage bin until the are gone through. They are accounted for by assigning that bin its own SKU# and using the total price paid for those items as its COG. When the bin is eventually gone through, the bin SKU# will be reassign to first item pulled from the bin and the COG and active date adjusted accordingly. Not only does this process keep the spreadsheet and accounting in check, the active date gives a constant reminder of how old that bin in getting.
The increase in unlisted inventory and for tracking and selling inventory in two locations that are 900 miles apart is getting a bit stressful. It’s breaking all the rules of best practices of inventory and asset management. But this soon will pass and operations should be back to normal operations.
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Do I assume that you’re a snowbird? I know other scavengers that have wondered how to run an eBay store when they split their time between two different places over the year.
Do you have two stores?
Turn one off when you’re away?-
Kind of getting off subject here, but no, just relocating. But not spending any significant time in any one location that allows keeping handling times consistent. The trick to knowing when and how long I’m going to be at a specific location so you can adjust the handling times. When I started accumulating inventory in the second location, I had to change the numbering system (SKU#) so I can easily search and modify them. Initially I had sold some items that were in one location that I wasn’t. No problem though, buyers were cool with it.
Like right now, I have items that had a 40 day handling time and have slowly been reducing it as the time gets nearer to when I’m at my second location. Inventory is not as broad in the second location so sales are minimal and not much shipping when I get there. When I leave here in a couple weeks, I’ll put these items where I’m at now on a 3 week handling time.
It’s not all that complicated. My online store software allows me to run everything from a single dashboard. Certainly helps given I sell on 1 eBay store and 6 additional eBay accounts.-
I left Wisconsin for Arizona for January, February and March. The way I handled my inventory was I deactivated breakables and large items (which took my inventory from about 260 items to about 180 items). I put my inventory into about 8 boxes and labeled them and my items in each box. Once I got here, I started thrifting to bulk up my inventory and I am now over 200 (in about a week or two). I will keep thrifting until I get my inventory back up to about 250, then as I get closer to leaving, I will stop thrifting to get my inventory back to a manageable, moveable amount. I put my store on vacation as I traveled as I thought it would be too difficult and distracting to have to find inventory, enough packaging material, set up my printer and find a Post Office to ship. I could probably ship while on the road since just about every hotel we’ve been in had a business center to print my labels (only one didn’t because their computers weren’t working).
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I, too, use a spreadsheet. I only have about 260 items in my store and only sell maybe 5 items a week, so right now, it’s easy. Date purchased, where it was purchased, purchase price, date sold, price sold, shipping cost paid, my shipping cost, eBay fees and PayPal fees. I will give it to our accountant when I give him all my tax stuff. I manually keep track of costs now, but if I start selling at a few items a day, instead of a week, I guess it would be harder to keep up with it.
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Well to be honest Ecommerce, your system is so impressive that it likely puts the rest of us to shame. 🙂
I venture a guess that many folks here are just as weak as me on the COGS side of things and are simply afraid to publicly document it here. I want to improve my business, so the first step is admitting you have an issue. So here goes…
Originally I spent some time developing a very thorough tracking excel spreadsheet with charts, pivot tables, the works. Every line item was tied to a specific receipt line item. It became a massive chore to manage and was taking up my time I needed to devote to listing. I’m very part time with ebay, so every minute counts.
Here is what I currently do: I download my Godaddy sales data to excel, then add a column for COGS. What is my COGS? The majority of my items are bought at Goodwill for a set price. Shoes $4-6, Shirts $4, Coats $7, Toys $1-5, etc. Things I buy at yardsales I stick to a similar system but at less cost. Once in the ballpark, I add on whatever sales tax I paid and then a few cents to cover shipping supplies (they are part of COGS). Round off to the nearest dollar and call it a day.
I rely on my memory to do COGS. It’s a horrible system and I need to replace it. If my memory is in doubt, I err on the side of caution.
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A system, no matter how horrible you may think it is, is still a system worth maintaining if you are consistent in applying it. What shocks me the most is those individuals that have no idea what their COG’s are, let along how calculate it. It is such a fundamental aspect of doing business, not to mention required for the preparation of tax returns. And if understood, gives so much insight into running of a business.
With a spreadsheet, an inventory management system is only as complicated as you make it. You only need 4 data points to keep track of your inventory. The item description, date and price paid and date sold. And because we’re humans and not machines, we need a unique identifier such as a SKU#
It doesn’t matter if your system has 100 items or 100K items. You only enter that information once and it takes less than a minute to record it. I like to look at this way… Rather than thinking of a system that needs to track 4k items, you only need a system for one item entered correctly, then has been repeated 3.99k times.
Thanks for listening.
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And if you use the Easy Auction Tracker” spread sheet it does all of that for you automatically. as a spread sheet it actually draws down all of that information and does all the calculations for you. The user only has to put in a few entries in a few key spots. See the demo here:
http://www.easyauctionstracker.com/
The cost is $50 for it on an annual basis. I personally have my own spread sheet that I developed that does a lot of what this does, but my Spread sheet is more of a back up system. I use Quicken for Home and Business which also downloads automatically from BOTH Ebay and PayPal, plus I have my Petty Cash [yard sale account] set up. I get all the reports for year end plus a running Profit and loss statement for any time period. I also combine that with WonderLister which handles all of my listing templates, Drafts in Process and also down loads all of the data from Ebay, item by item.
And by the way, if you enter your purchases into your accounting software and categorize them correctly along with your monthly sales, you do not really need to figure a COGS on every single little item you sell. Annual COGS for your accountant only needs to be as follows: ….
The cost of goods sold formula is calculated by adding purchases for the period to the beginning inventory and subtracting the ending inventory for the period.
Go to this link here and it is explained very simply…Now the trick is one getting your first Inventory Count-Cost. The spread sheet helps you do that. But from that point on, if you track all your purchases and use one of the tools above you should be good to go.
You are running a business and need to use business tools to cover the basics, but you don’t have to bury yourself in minute by minute little details. If you reconcile all your accounts monthly you will know you are staying on track.
But take a look at the Easy Auction Tracker demo, You can even download for free and then click on all the tabs to see what it offers BUT JUST AS GOOD is by looking at all those tabs, you will get a good idea of what you should be tracking and how it is compiled to give you a business over view of your business. I would think though that a hobbyist might not care too much about this type of stuff.
Mike at MDC Galleries in Atlanta
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Is it a legitimate COGS method to spread your inventory cost over a total amount of items? Say I go to a yard sale and purchase 20 items for $15. Without going into specifics of what these items are, I could enter in a spread sheet the date, the count of items purchased, and the total cost. My COGS would then effectively be 75 cents per item.
I could value my initial inventory level by creating a generic spreadsheet and valuing each item based on what I know I paid. No line item will be tied a specific listing – just a running tabulation of total of items and total cost. I could do a single line per item, or do a line item for a whole tub of like items.The goal of this method is so I can use Godaddy to do my COGS. I can go in and edit the description line on a transaction to the number of items and upload the receipt image and categorize to COGS. At the end of the year I’ll have a list of total cost with a column for total items per transaction as well.
My COGS would work out like this: COGS = Avg cost per item * total items sold.
COGS = ((Starting value + year value)/(starting count + year count))* year Total items sold.
The remainder would be my total inventory count and total inventory value.-
Yes, absolutely. Your accountant would even prefer it that way. You could even use the formula above and just give him the starting year [Jan. 1st] inventory cost, the total of what you bought the whole year, the total of what you sold for the whole year and your final year end, Dec. 31st, inventory count [which BTW will be your starting inventory for the following year starting Jan. 1. From that your accountant calculates your cost of goods sold using the above formula. The bear is getting your very first, ever inventory cost you spent for everything you currently own if you have not kept or use any kind of system or tracking method.
J&R are going to have an interesting time coming up with that one. LOL. I would love to be a fly on the wall. Ryanne, hey Jay when did we buy this, Jay, I dunna know. Jay, well what did we pay for it, Ryanne, I dunna know, .50 cents maybe? Maybe?? Maybe only works when you throw ice water and hand grenades not accounting. LOL :-).
Now I am detailed so I do keep a small clip board-register form I designed and printed out to use when I don’t get a paid receipt from somebody, but that is part of administrative bookkeeping skill set that most business people need to have. When I am at an auction, estate or yard sale I create a line item mini hand written receipt for myself containing what eCommerce states above. I use those to reconcile my petty cash register monthly. But what you state is also fine. $10 spent in TOTAL divided by # of items = AVG. Cost per item. Accounting wise it’s the $10 that counts, whether it was 3 items or 14 items. $10 bucks is $10 bucks and it is an asset until you offset it by selling something. Mike @ MDC Galleries in Atlanta
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I’m trying to devise ways to break down that initial count into baby steps so I can accomplish it over a few weeks.
I’m seeing it this way:
-Break down inventory into three groups – items currently listed, items already sold this year, items that remain to be listed.
-Start tackling all unlisted and logging in spread sheet. Identify counted items with bright orange stickers so I don’t put in another spreadsheet if I pull these items to list.
– log all previously sold items in spread sheet with COGS. Do this with my original method and assign actual COGS.
Log all currently listed items in separate spreadsheet and log in actual COGS. Merge this document with unlisted inventory at end of year. Move sold items to the sold items spread sheet.
– Draw a line in the sand for a date I will start using Godaddy to just keep track of a total purchase and the items purchased. Merge this with the backlog inventory spreadsheet at end of the year. But a different color sticker on these items so they will not get duplicated into another spreadsheet if I list them.If I start now, by the end of the year I should be able to merge all of my COGS spreadsheets to determine my actual COGS and have a total inventory value. It will be a mix of actual costs and averaged costs.
I am happy to accept any and all constructive criticism of this plan.
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I would tackle your existing inventory (listed and unlisted) first. Since this the huge number that will tie back into your COGS. Using the 4 data points mentioned earlier, arm yourself with a package of removal dot labels. Mark them starting with 1,2,3,4… On a spreadsheet or note pad, starting with the first item, create your titles and then place a label on the item if you can. Don’t worry about putting in a date or price. You want to get everything you have in-house on paper or in spreadsheet first.
Then go back and enter in the date and amount purchased. Don’t get hung up on anyone item. If you can’t readily determine the date or amount, move on to the next. Leave the field blank so you can sort on these fields to see what’s missing. Don’t be afraid to add a column for a note or reminder that may help later.
Next tackle the sold items in a similar fashion.
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I would add, for your unlisted items, don’t worry about itemizing each item. For example, if you come across a bag or box of items that was purchased from a single vendor, give that bag or box its own line item and number. You’ll deal with breaking it down either by average or actual when you go to list the items. Another example, if you have four bags purchased from one source, average the amount paid across all four bags.
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Ugh, I have only started thinking about this, but I’m just now nearing in on 150 items sold and I have the auction sale slips for most of those items. It is my yard sale and thrift shop buys that will cause me a pause. I’m starting to use a spreadsheet to track my non-auction items. I try to process the items that day if they don’t have a uniform price or tags.
I have GoDaddy for the main accounting system, but I haven’t been good about keeping up with COGs and mileage.
I’m looking to refine my system in 2017 to keep accounting easier.
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What would you do? I inherited THOUSANDS of collectibles/household/antiquey items that I list. How would you determine the COGS on these items. They are my personal items, but I never purchased them.
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This has been touched on a couple of times over the past year or so. I will pass along what the final conclusion was.
This final solution was stated by my accountant who is a CPA, an online consultant and an online member here at SL who I think his name was Mark, and he is an accountant and also his dad was an Auditor for the IRS.Here is the outcome.. If you claim a “zero” cost, then the sales amount shows as all profit and you pay taxes on the total sold amount at 100%. Great for IRS, bad for you. If you claim the cost of the item at the same as the sold price you then you pay the IRS zero amount. Great for you but bad for the IRS and they frown on not getting a share of the pie.
So the conclusion is to claim half of the sold price for your cost of goods sold. That way you pay taxes on only half of the sold amount, good for the IRS and you reduce those taxes by half which is good for you.
Without a receipt for anything you can’t prove that you paid that amount for it, but also an IRS auditor can’t prove you didn’t because he has no way to show the cost of a rare, vintage, desirable, collectible that has increased in value through the years.
So my CPA said that would be the best way to create a win-win situation, show you are not trying to avoid paying any taxes on the items yet you get to claim half of it as a COG. mike @ MDC Galleries in Atlanta -
The IRS is very clear on this in determining GOG on inherited property for resale.
IRS Publication 551
https://www.irs.gov/publications/p551/ar02.htmlYour last sentence explains it all… “…I never purchased them”.
For individuals, most generally, inherited property has been assigned some value in order to settle an estate and that value is what knowingly has been passed on to the recipient. In determining COG, you as the recipient need to determines how you will spread that value across those items. You can also dispute the valuation and have the items reappraised, but cannot take the loss as a deduction if the items reappraise less than the value originally received.
I would start by looking at it using average cost. If you find something that should be divided and sold separately, use the average cost and divide by the number of new items.
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Granted on inherited property.. a value was used to settle. But on personal items one has owned for years and years and receipts or written value doesn’t exist , do you think the 50/50 split that my CPA suggested is a proper application? Most people that start on Ebay start by selling personal items [minus those that they inherited] that get pulled from drawers, closets and their garages.
What’s your opinion on that. I called the IRS several times, even spoke with a rep in their legal department and no one at the IRS seemed to be able to provide an answer. Basically they were stumped as to how they would like to see a figure on the cost of an item sold arrived at. Even the whole concept of buying and reselling used items seemed to be out of their arena. That’s why I went with the 50/50 split suggested by those couple of individuals.
Now also we all know that just the cost of item itself is not everything that may go into the real COGS, but that is another matter and discussion for later, and usually is covered in your COA if set up properly.
Your thoughts on the 50/50 concept?… mike at MDC Galleries in Atlanta-
Again, the IRS is very clear with examples on their website and pub 551 on COG for PERSONAL property. Not verbatim, but selling personal property that someone had purchased or acquired for personal use does not trigger a taxable event. Due to age and depreciation and generally price paid is less than it’s selling price. Some of the exceptions I know are coins, stamps, collectibles and artwork. In which case, it becomes a taxable event and must treated such.
It doesn’t really mean anything, but never heard or come across, specifically, a 50/50 rule. All I know is for a business, you need to reasonably and pragmatically, determine an assets value or GOG if you intend to sell or include it in your business.
If a seller of many years selling their personal items on ebay wakes up one day and decides to legitimize their eBay selling as a business and starts taking business related deductions, they will need to determine the value of the personal assets that they are adding to their business. This is their equity in lieu of cash.
The way I apply and think of it is this. Nothing of usefulness in a business has a zero cost bases. You may have something on the books of zero value due to being fully depreciated, but not a zero cost basis.
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I think the issue of buying used goods for resale is very, very clear. Just ask any used car dealer!
Your COGS is just as it says, your “costs of goods sold”. At a basic level, you claim the price you paid and the cost of the shipping materials. If you have to buy missing parts, that becomes COGS. Any paid appraisals would become part of the COGS. If you pay to have it cleaned or repaired, that is COGS. Note that the time spent cleaning it yourself does not count unless you have a very specific business set up in which you are an hourly employee – your payment typically comes from the sale itself.If all of these items you speak of were free, then you remove the basic purchase price from COGS but you can still keep all of the other costs associated with goods sold. I wish all of my inventory was free!
Personally I would get another CPA immediately if one told me to claim 50% of my profit as COGS when he knows that I didn’t spend a dime. That is quite unethical and at the end of the day, your are the one that could go to prison or pay fines. A good way to check if a CPA is giving a half baked opinion or a documented fact is to ask him to put it in writing. I bet you lunch that there is no way that CPA will sign a document attesting to that flawed COGS reasoning.
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Think you missd the point Retro WV. I was talking about personal items you have owned for years, have no receipt for proof of purchase but you did buy it new at some point, you did pay for it, you did pay sales tax on it and now 25 years later you sell it. You did have a cost of that item, what do you put down. That is the question.
The inherited items Listing again was talking about is covered by the IRS rules Ecommerce linked to.
So, if I paid $20 for a coffee maker in 1985 but the receipt and paper work is long gone AND now I or my wife don’t remember what we actually paid for it, and sold it for $60 in 2016 what would you put down for a cost on it? That is where the recommendation of the 50/50 split came from. mc in atl.
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$0 I think. I put that I paid $0 for items given to me or my own personal items.
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Losing it. See above reply. If you put zero down, especially for personal items, then you will be reporting the sale at 100% profit with no offsetting costs. You did pay something for it, you just can’t produce a receipt or written proof of it. If you report that you paid half of the sales cost for it [and you probably paid way less than half], it becomes difficult for the IRS to also prove you didn’t. So stalemate and a win-win at claiming 50% of the cost.
Example $20,000 in sales and no cost of the item for, then IRS wants taxes in the 15% bracket paid of $3,000
>>> If $20,000 sold and you subtract half [a 50-50 split with the IRS], then they want 15% of only $10,000 because you state it cost you $10,000 to buy the items. You then only pay $1,500 in taxes. This way you show you are not trying to avoid paying but at the same time you are not having to pony up and pay taxes on the full amount of your sales and let the IRS get away with not allowing you to claim something for what you sold.
Then if ever audited you duke it out with them, but at 50/50 there is only two ways for them to go, they want more money or less money from you. Most auditors will just let it ride at the 50/50 split because they can’t prove one way or the other any more than you can.
So that’s what two CPA’s finally came to the conclusion of. mike at MDC Galleries in Atlanta
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Since this is my first year selling, I want to be consistent with future year’s spreadsheet, so I am going to change my costs of personal items to half of the sale price (I like consistency!) Now is the time for me to make those adjustments for upcoming years. Thanks for the great suggestions.
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Personal property coffee pot example. Unless it falls under the one of the IRS exemptions or you have used it in your business or have taken some sort of business deduction (storage, selling expense, cleaning etc…), there is no taxable event when you sell this item.
The rules are clear, individuals tend to make it difficult by applying them.
The IRS has dedicated a whole page related this this business online selling. I encourage everyone to review it before taking with their tax person.
https://www.irs.gov/businesses/small-businesses-self-employed/tax-tips-for-online-auction-sellers
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Yes, they are clear. Here is the exact wording…”Sales of Appreciated Assets at an Online Auction …
Examples of appreciated assets often include art, antiques and collectibles. If you have online auction sales of property where the sales price is more than your cost or other basis, you usually will have a reportable gain. These gains may be business income or capital gains.
I am a sub-S corporation for years. Have sold for years. A whole lot of stuff we bought and have paper work on it, BUT also have many items that are personal. NOTE the words art, collectibles, antiques. We have some of that. Almost everything in our $12,000 costed inventory is collectible. We advertise that we sell collectibles, most of our listings have the key word word collectible in it. So according to IRS statement above, the sale of a “collectible” especially since we are a corporation and doing this for years is a full fledged business venture for profit, then this is a taxable event.
The $20 coffee pot is a vintage collectible item which someone paid $40 more than it was bought for. Thus guess it appreciated to the point of being worth more. A taxable event. So what would you recommend that I put down as a cost so I won’t have to report the full $60 as a taxable event? I put this exact question to the IRS legal department and got transferred several times and no one knew. Told this to my accountant and the 50/50 rule was born. Claim half of the sales price and report the other half as a taxable income and pay taxes on that.So, I am completely open for a recommended number to enter into that line item coffee pot, that is collectible, is an asset in my inventory count, [if my storage burned down, I am going to say I lost a $60 item] and I don’t want to pay taxes on the full amount. What do I enter?
By the way my CPA is older, owns his own firm and has two sisters who have had antique booths for decades and he seems fairly familiar with the used, antique and vintage resale market.
Oh and also .. Fully aware of all the deductions that go into lowering the adjuted gross income figures. In certain cases with a good COA and itemized expenses I was able to not pay any taxes on my total sales for a few years. That is aother discussion, Deductions and how to lower your reported income. Yes, home office, sq. foot deductions of all utilties, expenses in procurement, handling expenses. Those are business deductions and not COGS. To be more accurate, COGS is more applicable to the Mfg. sector whereby I calculated the total Cost of Mfg. our goods that we sold. That company was 18 million dollars per year sales. In a home based vintage resell business there is, as you have stated, not really much in the way of REAL Cost of Goods Sold that classifies as a COGS. Most of it is business expenses and deductions which should be detailed in your COA [Chart of Accounts]. My COA has about 50 line items and are numbered according to the standard accounting lines used by most CPA’s.
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We’re getting into the weeds here and the goal post keep on changing. The point of the matter for collectibles is that you must determine a fair market value and when, practically and reasonably. How you decide to do it, is up to you. It’s like I said, I’ve never came across the 50/50 rule and that’s neither here or there. I personally feel there is better and more reliable way… comps, appraisals. My myself, if I were to sell my collectibles, I would start by looking what I pay to insure them on an annual basis.
And honestly, if this coffee pot was the only collectible that I had sold, I wouldn’t worry about. 5-10 times that amount, yes. Or a houseful of collectibles? I would get an appraisal. In Michigan, I pay less than $300 for an appraisal on personal, collectible and business assets within 3500 sq ft home and the insurance co accepts it.
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I personally like the 50/50 Rule. When I say I inherited thousands of items, I mean a large store and storage building and all contents of a packed house (think American Pickers meets Organized Hoarders). I’ve sold on Ebay for years, I was thinking my cost could be what I would pay for an item. But, I am a Scavenger and pay very little for my things. My parents on the other hand would pay much more than what I would ever think of paying. There are no appraisals on the items….these aren’t rare antiques, these are items that range on average from an Ebay value of $20-$100, anything under that I donate…anything above is a bonus value item. I understand that there is no hard and set rule if the item does not have a receipt and has not been appraised. I was just looking for a “What do you do?” answer.
Sharon -
I guess I am the lazy one here. I cannot stand the thought of itemizing each purchase individually, it would drive me insane and take up time I should be listing. I add up all my cogs for the year, subtract what hasnt been sold and use that number for my yearly cogs. I’ve sold well over 2k items this year, and currently have 1700 listed. I dont find it possible to be that meticulous with that many items. If I were selling duplicates then it would be easier. I’m getting anxiety just thinking about it! 😛
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Can you expand on this? How is your system different? If you’re going to still calculate COGS at the end of the year, isn’t it necessary to still itemize each item? If you don’t itemize … say you spend $5 on a box lot, but only part of that box lot sells in the current year – how do you calculate COG going forward for the portion that didn’t sell? I get that this method sounds much less tedious – just not sure how to go about actually doing it.
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It is a very simple formula for re-sellers and retailers. It is the method that our accountant [and us] use.
But first let me say you need a log system to record your purchases either manual [spread sheet or a simple bookkeeping system like Quicken for Business or GoDaddy Bookkeeping.] Quicken is about $89 a year for Home and Business PC version and GDB is about $10 mo. = $120 a year. BTW- Quicken can be set up to also track your personal accounts also, with internal Bill Pay, Budgeting and even has a simplified Business Reports section which includes a Business Profit and Loss section [which I think Jay says GDB does not.
I have always used Quickbooks Pro [a more robust real accounting system as Jay calls it, but that is because I have run 3 and 4 business of different types all at the same time before and need that kind of more powerful software]
Second let me say as does Jay and many others here, that if you are going to treat Ebay as a business as many of us do, then get yourself an accountant. An accountant does more than just fill out tax forms for you at the end of the year, they “advise” you on how to run your business, how to organize your paperwork, how to account for your expenditures, costs and deductions. You can call them any time of the year. In a sense they are your financial advisor. They will steer you right, guide you to success, keep you within the letter of the law AND show you how to do things much more simply and not have to do as much detailing as some “A” types force on them selves.Mark Tew is an accountant whom Jay has interviewed here on SL and he also does taxes for some of the members here on SL, but it is a side line more for him. You could try searching for him here on the forums or maybe ask Jay for contact info. Our find a local CPA, maybe even one who works out of his home close to you. Mine is only 2 miles up the road. Sometimes I have even just dropped by and sat down and asked him some questions, especially about inventory control, and certainly the COGS questions.
Now with that said:
The formula is this:
*** A retailer’s cost of goods sold is equal to the cost of its beginning inventory plus the cost of its purchases (the combination of these is the cost of goods available) minus the cost of its ending inventory.It has to be said that you have to have a total count from last year end of what your final Dec. 31st 2016 inventory was. We do a count every year, but this can be derived from our accounting system. That number also becomes your Jan. 1st 2017 starting inventory [which are classified as assets BTW]. Then you track all of your inventory purchases for the whole year, but let me say, you don’t have to have it item by item. If you buy 67 things at an auction on Wed., 26 things at 9 different yard sales then just make yourself hand written receipts for those 9 different address and a total, [personally I keep a Petty Cash Account within Quickbooks for all cash purchases], 3 purchases at one thirft store and you have all the receipt, then that’s all you need for “accounting” purposes. Then at the years end [Dec. 31st 2017] you add up all that is left in your inventory [year end inventory assets] and that will be what you will need for your year end calculations for 2017 COGS Sold.
So in the simplest of terms here is how it works.
*** Start the year with $11,200 of inventory [the amount you spent on the items in your storage on Dec 31st and starting Jan. 1st]
*** You buy $3,000 worth of “stuff” all year long [which you have receipts for and hopefully sort of tracked in a software program of manually in the old green ledger books].
*** At year end you add the year’s total purchases [new assets] to the Years starting Inventory number and we now have $14,200 of hard goods represented on our books [our 2017 assets]
*** BUT WAIT, Now we have to do our 2017 year end inventory count. And we see that all of the stuff left in our storage system comes to $9,000 worth that we spent on what’s left. This means we have “SOLD” some stuff [Assets through out the year]. This ending inventory number is subtracted from the two numbers that we added together above.So, the numbers come out like this… $11,200 [start invent. cost we paid] + $3,000 [new stuff we bought during the year] = $14,200 minus $9,000 [cost of what is left in storage at year end] = $5,200 in COGS [Cost of Goods Sold]. It doesn’t matter which items sold or for how much. Accounting wise, the amount of Inventory Sold [sold assets] cost you $5,200.
And thus we are back to the simple formula … The Year’s starting inventory “COST” + [plus] the years “PURCHASES” costs – [minus] the cost of the year end inventory count. That is it, three numbers.. Year start + years purchases – year end cost.
This question has been asked many times on the old blog and maybe now it will be searchable in the new forums.
BTW.. I am not an accountant and if I have this wrong. PLEASE correct me so we don’t let exist on the Forum as an incorrect statement. Mark or any other CPA Accountant types please chime in.
And Lastly: There are other ways to arrive at COGS sold, most which require more detailing but also will provide more data and information in return. Some people like to track COGS by the item. Each item with it’s own set of numbers, but that type of tracking can get tedious. Also Ebay and PayPal do provide many reports that can provide you with the same data. We also use WonderLister a robust listing program that I have always said was TurboLister on steroids, that provides tons of details on an individual item by item basis. Just sort, filter and print out any reports, any way you wish. But the simple formula above gets to your numbers fairly quickly.
mike at MDC Galleries in Atlanta
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MDC,
Nice explanation, but as a life-time finance/accounting professional including 11 years as a former EA, I have to chime in and caution you the method that I feel you are calculating your COG is inappropriate and unacceptable. Following this method, you are consistently changing the cost basis and the method of how inventory is accounted for on an ongoing basis. This is not allowed and there are strict IRS rules and regulations pertaining to inventory.To simplify the explanation, let use your example. What happens if the $3000 addition to inventory is for only 1 item and/or the item is purchased on 12/31/xx? Does this change the COG of the items sold? It shouldn’t, but in your example it does. Inventory is an asset and not an expense.
Bottom line, is that you need to have a fair amount of certainty as to the date purchased and amount of an item in inventory. Then you can decide if you want to use FIFO, LIFO, or average cost on similar items. However, you can’t change that method annually.
Hope this helps.
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Sure thing.. and as I said I am not an Accountant, just trying to explain how our CPA has approached it and explained it to us. He asks for our year end inventory every year. Of course he has the year start from last years end. And he asks for our Annual Sales Totals. He has told us that he doesn’t want a long ledger or Log of each item bought or sold but tells us to just make sure that we “do” have such a log of all of our itemized purchases and expenses in our accounting program. I keep a cumulative spread sheet of numbered line items and log each purchase into it’s own line with it’s pertirnent corresponding data. It shows up in our year end P&L statement and also in the General Ledger.
* And yes, we do log and track each and every item separately, the spread sheet Easy Auction Tracker does this for us as well as does Wonderlister. Dbl. back up systems here. We capture the exact date, location and item cost for each and every item we buy. We also take a $5.00 box lot of 5 items and just distribute and allocate $1.00 cost to each of those five.
So using the first and last inventory, total amount purchased, total sales and all of our Chart of Accounts [COA] categorized expenses he seems to tell us that is what he needs to do our Corporate Taxes.
So, unsure if we didn’t understand him, our he didn’t explain it correctly but he has done the final year end for us since 2002.
The real thing I am interested in and it is not really COGS is my P&L statement I pull monthly. That really tells me my true story. It shows all categories of income and expenses and the gross profit for the month. Then it shows me in a third column to the right of each what percentage of the income each of those expenses represent. I really like these feature and Then it shows me at the bottom what my total net profit is and it’s percentage as related to total income. Love that also [when it is in the black]Yep and you are correct so I don’t disagree that inventory is an Asset. I think I mentioned that a couple of times above.
And I know we both agree on this, a CPA or Accounting Professional such as yourself is a great investment in growing and understanding ones business and a valuable asset to a business regardless of size. Trying to zig-zag through all of the complexities of the Tax Codes, especially if you are a corporation [such as us] or are going to hire “employees” by yourself is a daunting task.
So good to know your background and look forward to more “Tax” related data from you in the future. I knew we had some smart members on here. 🙂
mike at MDC Galleries in Atlanta
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Back to the original question. I am going to attempt to use ebay to keep up with the COGS. It appears with Selling manager Pro, which is free for Premium and Anchor stores, that I can enter my COG into my listing when I create a new product. It also lets me enter a COGS into the ebay sales record of items that have sold that I did not enter a COG upon creation. Unfortunately there does not appear to be any way to add a COG to an item while it is active. Is anyone else doing this? The profit/Loss statement from ebay is not easy to read, but all I need is the numbers.
Like I said, I have not actually done this, but I am going to start 2017 by entering COGS for every item as I list.
Is there a fatal flaw that I am not seeing? Does anyone else use this method?
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I used to be very manual with my COGS. I would calculate each item as it comes in and average the total purchase by the amount of items that I bought. But recently as some of you know I like to streamline and outsource as much as I can so I can focus on the buying and selling….what I do best. I spent the last few days trying to figure out a way in excel to know my COGS and know value of each item for the year without tracking a single value of each item with a constantly changing inventory amount and value. simply base it on what comes in and what goes out and I think I figured it out. And the best part is I only have to do this once a year! If anyone thinks I am wrong or if this wont work let me know.
basically as long as you know how many items you brought in, how many items you currently have for sale, how many items you sold, and how much you spent for the year, it will tell you how much is in your ‘death pile’, the average cost of an item in that given year(taking rollover into account), your COGS
Hoping this will let me churn and burn without bogging myself in the details
here is an example the highlighted is the data I have to manually place in excel:
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Hey…
go to easyauctiontracker.com
It is a spread sheet built on Macros and does everything you have there but does it automatically by pulling in everything from Ebay. All you will have to do is input a small amount of data into the “Inventory” tab. Min. data you could use, is what you paid and a sku number. But just a little bit more info. like date bought, where bought, quantity and short description makes for a better report.
Calculates all the details without having to manually input all of the stuff. Just some basics.
Couple of other members here use it. Personally as you guys know, I like a more robust system like WonderLister or SixBit, but still with a small amount of input, these programs rock and roll, but are for a PC. But since you are doing an Excel SS I am assuming that you are on a PC.
Look at the screen shots to get an idea.
mike in atlanta
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Great work on the spreadsheet layout, however, you’re assuming you are paying the same price or average price on every item. What happens when you don’t? Say you pay $30 for 9 items and $30 for one item. Moreover, the simplicity may be fine for a dozen or so items or even like-kind items, but it’s really going to get whacked when you need to determine the COG on hundreds or even thousands of unlike items were the price disparity is great.
Tacking COG is not complicated. I think people complicate more than they need too. If you’re using Excel, at a minimum, you only need to keep a worksheet with 4 fields.
SKU#
Date paid
Price paid
date soldWhen you purchase inventory, you record fields 1-3. When you sell an item, record the date. At the end of the year, you sort by date sold and and SUM the price paid gives you GOGS. Easy Peazy…
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Is assuming they are the same value not accepted by the IRS?….not sure
Can I use the average cost per item for the year of what I spent on inventory? so If I spent $3000 on 1000 items couldnt I say each item is $3? Lets assume I paid $1 for some items, $30 for a few others and some others where free. As long as in the end the total number of items is worth what I spent
As long as I designate a value to an item sold couldn’t that be accepted? I understand its not a ‘true value’ but isnt it the same as if you bought ten ties for a $1 each and then another 10 ties for $2 each then throw them in a ‘death pile’…how do you know which one was from where?
The only reason I am thinking this way is because I currently am doing the above method where I count the cost of each item, but it gets messy when I have three death piles. and between working full time and ebaying part time along with a few other responsibilities to calculate the actual cost of each item takes up too much of my time and away from pictures, research and listing.
I also tried easy auction tracker and I tend to be very heavy on mobile so it didn’t work for me. I currently track everything on my spreadsheets in google sheets.
Guess this will be my 2017 experiment
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I don’t know what to say other than to say you’re making it way to complicated. If you know what you paid for an item, then assign that value to that item. You can use average cost, but then using it so broadly across your inventory, you’re getting into the method of how you identify cost for tax purpose. LIFO or FIFO and issue you don’t want to venture into because you need to keep a running balance and cost of the number of items purchased and sold.
And the problem with this, is that you’re doing the above solely for tax purpose. Knowing your cost should also aid you in quickly determining your profitability along with learning to source better and more profitable. What I mean by this, is that many individuals post their sales and COG on a regular basis. And although on the surface, it appears to be great. What’s missing from the puzzle is the total cost of inventory their carrying on their books. Two different sellers with similar sales and margins tell a different story if one has inventory of $1,000 and the other has $20,000.
As to your “death piles”, it sounds like you’re in a hole. And when you find yourself in one, stop digging and get it under control.
If I can offer my recommendation, do this on your existing inventory to determine each item’s COG.
1. Settle on a numbering system (sku) if you don’t already have one. Starting from #1 would be a smart move. Assign your listed items a sku. If you have 100 items listed, you have your first 100 sku’s.
2. Find your total current inventory value. At a minimum everyone should know this regardless if they have an inventory system or not.
3. Subtract from this value the items having an COG value already known.
4. Count everything that doesn’t have a value or is unlisted in your inventory. If it is a box or bag of items, count it as one and label it with its sku#.
5. Take the number in #3 and divide by #4. This is your COG per item that does not already have a value assigned. Both listed and unlisted.
6. Start working on listing your unlisted inventory using the COG in # 5.
If you continue to source before working down your current unlisted items, make sure you assign a sku and value to the items going forward. If you can’t get to it right away, box or bag it and assign and mark a sku to it. Then when you eventually get to the items, you can start assigning sku’s as you pull items out. You have to make this process part of your sourcing. If you are using a spreadsheet program, it should only take seconds per item.
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eCom…thank you for the advice and I am taking it! (this is why I love forums) I actually found another program called MYCOSTPRO which actually brings in active listings and allows you to edit from the excel spread sheet. It also keeps track of COGS etc…
I have been tracking my cost per item and I have a way of processing, but it is tedious and I was looking for a quick way to find COGS. Especially when your bringing in inventory and then don’t feel like listing it right away. Found a youtube video that they went through their new inventory processing routine and it helped tremendously. I guess I could use my original method to get the amortized value of my inventory.
I think the biggest part that most newbie sellers get stuck at is the processing of incoming inventory prior to listings
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Take a look at Easy Auction Tracker. It is a spread sheet inventory program and P&L sheet and logging of new incoming purchases. It does everything for you except enter the incoming basics which you have to do. When bought, where bought, a short title / description, and what paid. From there it handles all your sales, COGS, shipping, expenses and produces reports automatically. Very cheap. One time $50 charge for the whole year. Downloads all your sales and associated costs and itemizes it all in the spread sheet, produces several graphs and business total summaries. They have several video demos on their site and also a full download trial.
Better hurry though because it pulls everything from Ebay and Ebay only keeps 90 days of data. So when you download and do the quick set-up, the Easy Auction Tracker spread sheet it allows you to go gather all of your data for the last 3 months. But after the end of March (90) days then you won’t have all of this years data. It still works just fine, but your Annual figures will be off until you start 2018 over, next Jan. But all of the monthly and quarterly reports will be OK.
It is called Easy Auction Tracker. Several other SL members have talked about it and state they use it.I have used it in the past but now, personally I use a more robust, higher end program but what I use is a monthly subscription and is more complex and has a steeper leaning curve.
link: http://www.easyauctiontracker.com
Take look, many seem to really like it.
mike at mdc galleries in atlanta
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