Recording COGS by SKU to Xero Inventory
Xero has an Inventory tracking feature that allows you to track the purchases and sales of products and record the Costs of Goods Sold (COGS) using the average costing method. To record COGS using Sales Invoices, Xero Inventory needs the exact SKU and the number sold for that item to be recorded on the invoice.
In A2X Settings > Invoices, there is an option to group 'Sales by SKU' which aggregates the settlement sales by SKU and number sold.
When this option is enabled and the settlement is sent from A2X to Xero, the SKU and number sold for each product sold are detailed on the invoice created. Then, when the invoice is approved, the number of products sold by SKU reduces the Quantity on Hand in Xero Inventory. This change to inventory records the Cost of Goods Sold.
Inventory Changes Other Than COGS
Other changes to Xero Inventory, such as returns and lost items, do not get accounted for in Amazon Settlements. Therefore, these changes will need to be entered into Xero manually.
Manual Entries for Xero Inventory
Xero Inventory is designed to handle simple inventory tracking. Amazon Inventory is much more complex than that. For example, Amazon allows for a longer SKU than Xero Inventory does. When Amazon creates a SKU for a new item, which is longer than what Xero allows, the SKU has to be shortened in Amazon and entered into Xero Inventory before importing an A2X settlement into Xero.
SKUs in Amazon Inventory have to match exactly to SKUs in Xero Inventory for A2X settlements to send to Xero.
Because of the less automated elements of the processes involved with the group 'Sales by SKU' option, it is best suited for 5 SKUs or less.
A2X COGS and Inventory Valuation - A Scalable Alternative
To help our users reduce their manual Inventory management, A2X offers its own COGS and Inventory Valuation features. By uploading and maintaining average costs for products in A2X, users can send COGS entries from A2X for every settlement period.
At the end of each month, A2X imports Amazon's month-end Inventory Valuation Report which gives the final value for inventory, including all inventory changes other than COGS.
To learn more about these features and how to set them up, see the following articles:
Overview of Cost of Goods Sold
FBA Inventory Valuation
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