What is Cost of Goods Sold?

Cost of Goods Sold is a feature in A2X that will calculate the total cost of the products you sell on Amazon for each settlement period and send the transaction to your accounting system so that you can correctly record the changes in inventory and cost of sales. This will give you an accurate view of your gross profitability and margins directly in your financial reports.

Why should you care about Cost of Goods Sold?

In a very simplistic cash-based accounting system you might expense your stock purchases when they happen. So if you buy 100 T-shirts from your factory and they cost you $5 each, then in the month you buy them, you incur a $500 expense called 'purchases'.

If you sell 20 T-shirts per month for $10 each, then you would have revenue of $200 in that month, and a $500 expense, uh-oh, you lost money this month, or did you?

The next month would be much more profitable though, no stock purchases and $200 of revenue, all pure profit, or is it?

This uneven view of your margin and profit is exactly why you will want to account for your stock on an accrual basis, matching the cost of the goods to the sales of those goods.

In our scenario above, this new approach would mean in the month you purchase the stock, you record a $500 asset in your accounts called inventory. Then as you sell the stock, you expense the cost of just the product you sold.

So if you sold 20 T-shirts for $10 each, and they cost you $5 each, then your sales are $200 and your coat of goods sold are $100. Your gross margin is $100, which is a much fairer view of your profitability.

How to access Cost of Goods Sold features?
Beta testers had advanced access to the COGS features during 2017, in 2018 the cost of goods sold feature will be available as a standard offering on new Starter, Standard and Premium plans.

Getting Started/Setup of costs and COGS accounts

In order to use Cost of Goods Sold features you will need to provide A2X with two things:

  1. Cost price data for your Amazon products
  2. The asset and expense accounts from your chart of accounts to use for the transaction

Both of these are configured in A2X settings under the Product Costs tab.

Cost Price Data

Download an example cost template, or a blank template with your SKUs pre-populated. Edit the template in your favorite spreadsheet to add cost information, and then upload the cost file in .csv format to A2X so it can be used for calculations.

Asset and Expense Accounts

To create accounts in your accounting system for your inventory and COGS. Select these accounts in A2X settings, so they are applied on the COGS invoices A2X generates.

Turn on "Enable Cost of Goods Sold".  Set your accounts to map to your accounting software here in Costs.

There are several options for mapping COGS transactions.  They can be split by FBA, Merchant Fulfilled, and non-Amazon.  Click on the + sign to the right.

This expands the account mapping options for COGS to this:

You can account for COGS on one level or expand to other levels if you business requires this level of tracking.

Example accounts are below:

Pro tip: There is a delay after creating accounts in your accounting system to when they appear in A2X, you can force the cache to refresh under Settings > Connections in A2X.

Once you have saved your Settings here, head on over to your Settlements and open a Cost Of Goods Sold settlement.  The number and cost of items sold in the three categories now show:

If you do not see any cost information in your settlement when you review it, click the 'refresh' link for that settlement, this will force A2X to apply the newly uploaded costs to this settlement.

When you send them over to Xero, they can be found in Draft Bills. 

To commit the changes to COGS and inventory, approve the bill, even though it is zero.

When you send them over to QuickBooks Online, they are found in the Bank Journals split between the various inventory and COGS accounts.

Reviewing and Sending COGS invoices to your accounting system

After you enable COGS in the A2X settings, and upload your costs and configure your asset and expense accounts, you will need to refresh any old settlement periods that you wish to recalculate the COGS data for. You can do this on a single settlement by clicking the Refresh link, or use the bulk tools (click the little spanner icon) to refresh multiple settlement periods at once.

When the settlement has been refreshed you can click Review to see the details of the COGS for that period, and send the data to your accounting system. The COGS invoices will appear below the usual Sales and Fees invoices, you will see one or two invoices depending on whether the settlement period spans more than one month.

Each Amazon settlement is processed, the quantity of product sold is calculated and the cost value of the product is totaled into invoices in the same way as the sales and fees. You can configure A2X to include or exclude the non-Amazon shipments, which allows COGS calculations for non-Amazon sales shipped from Amazon FBA. You can upload different cost data and refresh a settlement to have A2X re-calculate the new cost of goods sold values by clicking Refresh.

When all SKUs have a cost associated with them, you can send the invoices to your accounting system by pressing the 'Send Invoices' button.

The COGS invoices in your accounting system: Xero

When you send the COGS invoices to Xero they will always total to zero and be considered 'Bills'. The invoices reflect a non-cash movement of inventory asset value to cost of goods sold expense. The accounts chosen in A2X settings will be used on the invoice.

You can view the specific details on the invoice including the source of the cost data used for the calculation, A2X aggregates the totals in the invoice.

Each COGS invoice sent to your accounting system will have supporting data attached so that the calculations that were used can be recreated should they be required during audit or review.

The COGS invoices in your accounting system: QuickBooks Online

When you send the COGS data to QuickBooks, it will be a Journal Entry, one for each month and attached to the journal will be the source data. The journal will be a non-cash journal as it debits the expense account and credits the asset account for the same amount.

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