Confused - COGS or Deductible Business expense?

[Croft]

Hi,

I am in the process of starting up a small invitation design business and am confused about accounting for the outsourcing of the printing of my designs? Would the costs involved with each item for printing (including the paper that the printer supplies) be considered Cost of Goods Sold or a deductible business expense? If it is COGS how to I calculate inventory when in fact the costs are per order and I have no actual inventory?

Thanks!

Laura

[mthomas]

This should be considered Cost of Goods Sold. Inventory would be calculated by multiplying the cost of goods sold (per product) by the amount of inventory you have. If you have no inventory, however, than your inventory would be zero.

I'm a little rusty on this topic, so don't 100% hold me to this.

[ScottRobertson]

It's COGS.

[rogercbryan]

Hi,

I am in the process of starting up a small invitation design business and am confused about accounting for the outsourcing of the printing of my designs? Would the costs involved with each item for printing (including the paper that the printer supplies) be considered Cost of Goods Sold or a deductible business expense? If it is COGS how to I calculate inventory when in fact the costs are per order and I have no actual inventory?

Thanks!

Laura

If the items are in your shop then you have inventory. You should be able to find your cost per unit:

5000 Sheets of Paper cost $50 or $0.01 per unit
1 printer cartridge(2500 prints) = $150 = $0.06 per unit

This way you can calculate each job with in reason. You may not carry large amounts of non-used inventory... but while you are preforming a job you are then using the supplies. As you are in the printing business and I am not I would try to find someone who is to answer this question in more detail. For me paper and cartridges goes under office supplies as printing is not my business.

[EBITDA]

If the cost is directly related to the production of your product, regardless of whether you do it in-house or outsource it, its COGS.

Its inventory once you pay or get billed for the product (Dr Inventory and Cr Accounts Payable). Once you sell the product - Dr COGS and Cr Inventory / Dr Cash or AR and Cr Revenue.