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
InventoryIQ
Want help choosing the right method? Check out How to choose your COGS tracking method in Finaloop.
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
Dead inventory
Other inventory costs
Production labor costs
Duties & tax
Inventory insurance
Pallet costs
Shipping surcharge
Vendor fees
Product donations
Product giveaways
Warranty reimbursement
How Finaloop treats transactions in these categories depends on your selected COGS tracking method.
You can also view the list in the app by clicking Learn about purchase categories, which opens Inventory Categories:
Purchase-based: in the sidebar, click Inventory.
Sales-based: Inventory → Inventory purchases.
InventoryIQ: Inventory → Inventory vendors → Bills & payments.
Important: 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.
At year end, Finaloop asks you to report your inventory balance in the Wrap up inventory task, and adjusts your COGS so it reflects the inventory you have left.
📌 Key takeaway: Expenses hit your books right away, even if you haven’t sold the products yet. Learn more in Purchase based COGS: Everything you need to know.
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.
Exceptions
You can change the Accounting treatment of specific transactions, or set default rules for specific vendors or categories, to treat their transactions as COGS (e.g., packaging materials or labels) or as Dropshipping A/P instead of the default Inventory treatment:
For specific transactions: on Inventory purchases, select the rows, then click Actions → Change accounting treatment.
For default rules: click Purchases settings, open the Accounting treatment tab and click Add rule.
Finished products and Supplies & materials can't be treated as COGS.
COGS
Treating transactions as COGS will:
Directly increase your COGS in the P&L at the time of purchase, and
Won’t impact your Inventory on the Balance Sheet.
Dropshipping
Depending on your dropshipping set up, purchases marked as dropshipping will either:
Directly increase your COGS balance with no impact on inventory, OR
Will reduce your Inventory Vendors - Dropshipping AP balance. In this case, dropshipping COGS are recorded based on an average dropshipping cost per unit you provide for each product.
Learn more about the different dropshipping options and how we choose the best one for you in Managing Dropshipping (Sales-Based COGS).
📌 Key takeaway: COGS will only hit your P&L when you sell products, not when you purchase them, unless you mark a purchase as COGS or dropshipping. Learn more in Sales based COGS: Everything you need to know.
4. 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 change the Accounting treatment of specific transactions on Inventory vendors → Bills & payments, or set default rules for specific vendors or categories, to treat their transactions as COGS (e.g., packaging materials or labels) instead of the default Inventory treatment.
Treating transactions as COGS will:
Directly increase your COGS in the P&L at the time of purchase, and
Won’t impact your Vendor POs - rolling balance 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 COGS.
To learn more about the different dropshipping options for InventoryIQ, check out Managing Dropshipping (InventoryIQ).
Need help?
If you have any questions, feel free to reach out to our Support team ([email protected]) for help!