About

Finaloop gives you the flexibility to choose from three inventory and COGS tracking methods, so you can pick the one that fits your business best:

Purchase-based COGS
Sales-based COGS
Unit-based COGS (InventoryIQ).

Want help choosing the right method? Check out this guide.

Each method treats inventory purchases a bit differently. This article breaks down the different inventory-related categories in Finaloop and explains how they’re handled depending on the COGS method you use.

1. Inventory & COGS categories in Finaloop

When a transaction from your bank/credit card or from a bill is categorized into any of the categories listed below, Finaloop automatically tags this as inventory-related.

These categories include:

Dropshipping
Finished products
Shipping & freight-in
Supplies & materials
Packaging materials
Production costs
Consignment
Custom fees & services
Other inventory indirect costs
Production labor costs
Duties & tax
Inventory insurance
Pallet costs
Shipping surcharge
Vendor fees
Warranty reimbursement

How Finaloop treats transactions in these categories depends on your selected COGS tracking method.

You can also view the list on your Purchases page (Purchase-based / Sales-based) or your Bills & Payments page (InventoryIQ) by clicking on "Learn about purchase categories".

Heads up: There are three inventory-related categories that are always treated as an expense, no matter which COGS tracking method you’re using.

These items won’t impact your inventory balance—instead, they’ll show up directly in your Profit & Loss (P&L) in the relevant expense or COGS category.

These exceptions include:

Dead inventory
Product donations
Product giveaways

2. Purchase-based COGS method

With purchase-based COGS, we recognize the cost of goods sold when you buy inventory, not when you sell it.

Any transaction in the categories above will increase your COGS on the Profit & Loss (P&L).
These purchases won’t affect your inventory balance on the Balance Sheet.

📌 Key takeaway: Expenses hit your books right away, even if you haven’t sold the products yet. Learn more here.

3. Sales-based COGS method

With sales-based COGS, we recognize your cost of goods sold only when you make a sale.

Transactions in the above categories will increase your Inventory on the Balance Sheet.
They won’t impact your COGS on the P&L at the time of purchase.
Your COGS will be recognized only when products are sold, using:
- The cost per unit synced from Shopify, or
- The COGS data you input in Finaloop’s Inventory module.

⚠️ Exception: You can set default rules for specific vendors or categories to treat their transactions as incidentals (e.g., packaging materials or labels). These will:

Increase your COGS in the P&L at the time of purchase, and
Won’t update your Inventory on the Balance Sheet.

📌 Key takeaway: COGS will only hit your P&L when you sell products, not when you purchase them, unless you mark a purchase as an incidental expense. Learn more here.

4. Unit-based COGS method with InventoryIQ

With InventoryIQ, COGS are recorded when you sell products, based on detailed purchase order (PO) data you manage in Finaloop.

Here’s how it works:

You add a Purchase Order (PO) in InventoryIQ.
This increases your Inventory on the Balance Sheet and also increases a separate account called “Vendor POs - rolling balance.” This account reflects the open balance owed for inventory that’s been ordered but not yet paid for.
When you categorize a payment (from a bank, credit card, or bill) using one of the inventory-related categories listed above, it reduces the “Vendor POs - rolling balance” accordingly.

⚠️ Exception: You can also set rules for specific vendors or categories to treat some transactions as incidentals (e.g., packaging materials or labels). These will:

Increase COGS in your P&L at the time of purchase, and
It won’t impact the Vendor POs - rolling balance.