Cost of Goods Sold is a feature in A2X that will calculate the total cost of the products you sell via your Shopify store for each payout 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.

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 cost of goods sold are $100. Your gross margin is $100, which is a more realistic view of your profitability.

The cost of goods sold feature is available as a standard offering on the A2X for Shopify Basic plan and above.
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In order to use Cost of Goods Sold features you will need to provide A2X with two things:

Both of these are configured in A2X under the Costs tab and Settings > Cost of Goods Sold respectively.

There are three ways you can provide A2X with your cost price data.

1/ Enable the Shopify costs sync
​Follow the steps HERE

2/ Add costs via Costs > Manage Costs tab

On the Manage costs tab, A2X may have already found a number of SKUs from your account. If you don't see any or all of your products listed you can initiate a refresh by clicking 'Refresh SKUs'. This will search through recent payout data for SKUs.  

Once you see each of your SKUs listed, you can manually type in the cost price for each, as shown below.

Once you have entered all cost prices, click Save Costs:

3/ Add costs via CSV File Upload (bulk upload)

Click the ""Upload .CSV File" button, you will see a link to download either the 'current cost template' or an example template. The current cost template is great to use if you have refreshed the SKUs in your A2X account. A2X will provide you with a template of all the SKUs we see in your account so all you need to do is enter the cost prices.

Once you have populated your template with the cost prices it is now time to upload it to A2X.

Success!

In your accounting system's chart of accounts, you will need an Inventory Current Asset account and a Cost of Goods Sold Expense account.

You can create these in your accounting system as shown below. For further information on the creation of Inventory and Cost of Goods sold accounts please click here:
​Create an Inventory Asset account and Cost of Goods Sold account in XERO
​Create an Inventory Asset account and Cost of Goods Sold account in QuickBooks Online

Create an Inventory Asset account and Cost of Goods Sold account in Sage

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

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 Payouts list and click review on a payout to review the Cost of Goods Sold entry. Expand the Cost Of Goods Sold entry and you will see that the number and cost of items sold now show:

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

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

When the payout has been refreshed you can review 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 payout period spans more than one month.

Click to review:
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As each Payout 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 upload different cost data and refresh a Payout 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.

Once all product costs are assigned for a settlement period and you are happy with your SKUs and cost price configuration, you can enable the automated posting. When this setting is enabled, any new Cost of Goods Sold (COGS) fetched after that day will be auto-posted to your accounting system.

Please note: COGS prior to the date auto-posting is enabled will need to be manually ported over to your accounting system.

To learn more about Auto-posting click HERE.

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.

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.

When you send the COGS invoices to Sage, they will appear in your ‘Purchases Invoices’ tab with the total amount as 0.00.

The invoices reflect a non-cash invoice of inventory asset value to cost of goods sold expense.

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

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