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Cost of Goods Sold (COGS) in Cin7

Last updated 22/01/2021

Overview of how Cost of Goods Sold (COGS) are used within Cin7 to calculate the gross profit of each sale.

What does Cost of Goods Sold mean?


Cost of Goods Sold - frequently referred to as COGS - is the cost of the products that you have sold.

To find the Gross Profit of your sale or sales, you can apply this simple calculation:

Sales - COGS = Gross Profit

The more accurate the COGS, the more accurate your gross profit will be, which results in better business decisions. As discussed below, Cin7 has a very accurate method of calculating COGS.

How Costs are Created


In Cin7, stock is valued by:

  • The price at which a product has been purchased or adjusted,
  • Plus any landed costs,
  • Less any tax.

The price at which you buy or adjust stock is applied to specific inventory items, meaning that price fluctuations and changes in exchange rates will be accurately reflected in the cost of each item. Cin7 does not use average costs to calculate COGS.

If you buy in a foreign currency, the cost will be converted back to your base currency. See the Purchasing in a Foreign Currency Help article for additional information.

If you paid for freight or customs duty, these costs can be added to the total cost of your products. See the Applying Import Costs to a Purchase Order Help article for additional information.

How COGS are applied to a Sale


When a sale is first created, Cin7 uses the most recent purchase price as a temporary cost to enable a summary of the gross profit of your sale - visible to the top right of the products grid.

When your order is dispatched, the true costs of the specific inventory items dispatched are used. If you are using the FIFO method to track inventory, the product dispatched will be the oldest (i.e. the first in).

At this stage, an invoice date should be entered, and the transaction imported to your accounting software. This is a crucial point; in summary, COGS will only generate for a sale when:

  • The line item has been dispatched
  • A Fully Dispatched date has been entered
  • An invoice date has been entered
  • The Order QBO/Xero Import Status is either "Imported" or "Do Not Import"

Cin7 automatically calculates COGS for all orders that fit these criteria once per day. To generate COGS for sales click on "Preview" in the Xero module. 

COGS and your Accounting Software


If you are using the Periodic Method to account for your inventory, there is no need for COGS to pass to your Accounting Software. The purpose of COGS for you will simply be to analyze gross profit within Cin7.

If you are using the Perpetual Method to account for inventory, COGS are passed to a nominated expense account in your accounting software at the single click of a button.

FAQs

No COGS have generated for my order. Is this normal?

Check that the order fulfills the criteria mentioned above, that 24 hours have passed since you imported to your accounting software, and then check that the items in your order did actually have costs associated with them.