Cost of Goods Sold is a feature in A2X that calculates the total cost of the products you sell on Amazon for each settlement period, and sends the transaction to your accounting system, so that you can correctly record the changes in inventory and cost of sales. It provides you with an accurate view of your gross profitability and margins directly in your financial reports.
​

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

If you sell 20 T-shirts each month for $10 each, then you would have revenue of $200 and a $500 expense in that first month, uh-oh, feels like you lost money, 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 the reason why you would 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 you will record a $500 asset to your Inventory asset accounts in the month you purchase the stock. Then, as you sell the stock, you will expense the cost of 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 is $100. Your gross margin is $100, which is a much more realistic view of your profitability.

The cost of goods sold feature is available as a standard offering on the Starter, Standard and Premium plans.

To use the Cost of Goods Sold feature, you will need to provide A2X with two things:

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

1/ Add costs via Costs > Manage Costs tab

Click on Costs in the header menu as shown below:

A2X may have already found a number of SKUs from your account on the Manage costs tab. If you don't see any or all of your products listed here, you can initiate their fetch by clicking 'Refresh SKUs'. 

This will search your recent settlements, and recent inventory (if you have FBA).

Once your SKU's are listed, you can manually type in the cost price for each, as shown below:

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

​2/ 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, upload it to A2X.

Success!

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

If you need help with the creation of these accounts, please check these articles:
​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

When you have these two accounts set up in your accounting system, go back to A2X Settings > Cost of Goods Sold and enable the feature. Then, map your COGS expense account and Inventory asset account as shown below.

Pro tip: There is a delay after creating accounts in your accounting system to when they appear in A2X, however, you can force the cache to refresh under Settings > Connections in A2X.
​
There are several advanced options for mapping COGS transactions. COGS can be split by FBA, Merchant Fulfilled, and non-Amazon.  Click on the + sign to expand the account mapping options. 

This means you can account for COGS on one level or expand to other levels if your business requires such a level of tracking.

Once you have saved your Cost of Goods Sold settings, go to the Settlements page and click on the 'Review' link next to any of your settlements to review a Cost Of Goods Sold invoice that was generated:

If you do not see any cost information in your settlement when you review it, go back and click the 'Refresh' link next to that settlement on the Settlements page, which will force A2X to apply the newly uploaded costs to it.

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 using the Bulk Actions 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.

Click to review:
​

Each Amazon settlement is processed, the quantity of product sold is calculated and the cost value of the product is consolidated into invoices in the same way as the sales and fees. 

You can upload different cost data and have A2X re-calculate the new cost of goods sold values by clicking 'Refresh' link next to any settlement on the Settlements page.

When all SKUs have a cost associated with them, you can send the invoices to your accounting system by pressing the 'Send to Xero (QuickBooks)' 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 sent 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 they can be found in Draft Bills. The invoices reflect a non-cash movement of inventory asset value to the cost of goods sold expense.
​
To commit the changes to the COGS and inventory accounts, you need to approve the bill, even though it is zero. 

You can view the specific details on the invoice including the source of the cost data used for the calculation.

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

When you send the COGS data to QuickBooks Online, 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.

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

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.

Hint: If you are in chat and wish to view the article outside of the chat window, please click HERE