Skip to main content
All CollectionsInventory & COGS Sales-Based COGS
Sales based COGS: Everything you need to know
Sales based COGS: Everything you need to know
Emily Burrows avatar
Written by Emily Burrows
Updated over 5 months ago

1. About

This article explains the ins and outs of sales based COGS. We’ve also created a video that covers how we track your COGS and inventory using the sales based method.

Using sales based COGS:

  • When you purchase inventory, your inventory balance increases.

  • When you sell inventory, COGS are recorded in your P&L and the Inventory value in the balance sheet is reduced.

  • For example, you sell 5,000 units at $1 on 1 June. COGS in the P&L increases automatically by $5,000 and the Inventory value in the balance sheet decreases by a corresponding amount ($5,000).

You can track all this movement in Inventory>Overview.

In this article, we'll walk you through each step of this process. Starting with your opening balance, then how to track your inventory purchases, and lastly how to manage your COGS in Finaloop under the sales based tracking method.

When you look at the TOC on the right, you'll see there's a lot here. Take it easy! Scan the TOC to see which items are most relevant to you right now. It's an article that you might want to take in bite-sized chunks.

2. When should you use sales based COGS?

Before you start diving into the fun-filled world of sales based tracking, head over to the article on How to choose your COGS tracking method in Finaloop to choose the best COGS method for your business.

In this article, we'll assume you've already seen that and have decided sales based is the right choice for you.

3. Setting up your opening balance

Navigate to Inventory>Settings>Opening balance and enter the opening balance.

This is the balance of your inventory on the last day of the year before your books start in Finaloop. For example, if your books start on January 1, 2024, add the inventory balance on December 31, 2023. You can find this in the balance sheet in your previous accounting software or in last year's tax return, if it was already filed.

This is a one-time task that ensures we're starting off with an inventory starting point that's fully reconciled to your tax return.

4. Track inventory purchases

Now that we covered the opening balance, let's jump into the next part of your inventory process, which is purchasing your inventory products, supplies, and materials.

To view / track inventory transactions, navigate to the Purchases screen (menu pane>Inventory>Purchases tab).

The screen has multiple sections.

Filters (#1)

Relative date period: e.g, today, last month, last quarter etc

Date range: from and to

Status: in process, in transit, received. Changing the status affects the breakdown of inventory in the balance sheet.

Type: all, incidental, purchase

Search: enter text or a value

Inventory Totals (#2)

Purchases received

Total purchases

Total incidentals

Category totals

On your screen, you’ll only see the relevant categories for your business.

  • Dropshipping

  • Finished products

  • Shipping & freight-in

  • Supplies & materials

  • Packaging materials

  • Production costs

  • Consignment

  • Custom fees & services

  • Dead inventory

  • Other inventory indirect costs

  • Production labor costs

  • Duties & tax

  • Inventory insurance

  • Pallet costs

  • Shipping surcharge

  • Vendor fees

  • Product donations

  • Product giveaways

Drill down details

Click the category to get the drill down for each category.

Transaction Details (#3)

View transaction details

Click on each transaction to update transaction details such as:

  • Status - changing the shipping date or received date will determine if the purchase is inventory in process, inventory in transit, or inventory received.

  • You can also split the purchase into 2 or more transactions or shipments and update the status of each split.

View the transaction source(bill) and/ or upload attachments.

Actions (#4)

You can also click on Actions to take these additional actions:

  • Add a historical transaction for any purchases that were ordered prior to when your books started in Finaloop but weren't yet received.

  • Export your purchases into a CSV.

  • Change type of purchase to incidental in order to treat it as a direct COGS and not as part of your inventory. Just select the purchase that applies and click change type.

5. How to track your sales based COGS

Heading back to your inventory overview, the next stop is your COGS.

COGS can also include dead inventory and incidentals. In addition, product giveaways and product donations can also reduce your inventory. We'll walk you through all of these scenarios and explain how we can help with these cases.

There are two ways to track sales based COGS when inventory is sold:

  • Track per SKU by using an average cost per unit

  • Track per channel by inputting a total COGS number

Option 1: Track per SKU using an average cost

You can upload the average cost per product into Finaloop or if you use Shopify, we can sync these costs automatically. For both Shopify and Amazon, we'll use this data to calculate COGS based on real-time sales.

Activating per SKU method

To activate, make sure the Report per SKU toggle is ON in Inventory>Settings.

NOTE: If you sell through sales channels that are not Shopify or Amazon, you'll need to manually input your quantity sold for each product or, record them per channel (below).

Managing products

Head to Inventory>Products. Here you'll see all your SKUs pulled from Shopify and Amazon, with the cost per unit from Shopify (Amazon doesn't have this data available).

The stock levels and inventory values are displayed by product/ SKU.

Filters (#1)

Use the different filters to select/refine the data. When you’re ready, click Apply to see the results.

Date

Product

The filter button opens a wide range of filters.
​​NOTE: By default, you only see active products, but you can select Inactive as well.

Actions (#2)

Bulk cost editing

Merge products

Export

Show/hide in product list

Add products

Stock source details (#3,#4,#5)

Source

Attributes

Net units depleted

Average cost / unit

Updating product cost per unit

If your product costs are updated in Shopify, we'll sync these to Finaloop automatically. If you don't sell some or all active SKUs on Shopify or you don't keep Shopify costs updated for active SKUs, you can update your product costs in one of several ways:

  1. Add a new cost for a single product

  2. Edit a historical or existing cost for a single product

  3. Update costs per unit in bulk

Note: If you see a mission in My Missions that says you have ‘Missing cost per units’, you should head over to the Products page to enter the missing costs using one of these methods.

Just go to Inventory>Products and switch the toggle at the top of the page that says products are missing cost per unit for COGS calculation to on. This will show you the specific products that are missing costs per unit. Then, follow the instructions below for the relevant method for adding the cost per unit.

>To add a new cost per unit for a single product:

  1. Navigate to Inventory>Products.

  2. Select a product SKU and click the Cost per unit tab.

  3. From the right, click Add cost per unit. ​

  4. Enter the from (start) date and the new cost per unit.

  5. Click Save.

Finaloop applies the cost from the start of your books in Finaloop or on the first day of an open year (if your previous years' books in Finaloop are closed), or on the selected date.

> Edit an historical or existing cost for a single product:

  1. Navigate to Inventory>Products.

  2. Select a product SKU and click Cost per unit tab.​ ​

    ​

  3. To edit an historic cost, click the cost pane and then click the Edit (pencil) icon.
    ​

    ​

  4. Enter the new historic cost and the date the historical cost is relevant.
    ​

    ​​

  5. Click Save.​​

Editing a cost replaces the previous cost, and the new cost is applied using the applicable date of the previous cost.

>To edit an existing cost per unit for multiple products with different costs:

  1. Navigate to Inventory>Products.

  2. Click the Actions button in top right and select Bulk costs editing.

  3. To edit each SKU individually, enter the updated cost in the Average Cost column.

>To edit an existing cost per unit for multiple products with identical costs at once:

  1. Navigate to Inventory>Products.

  2. Click the Actions button in top right and select Bulk costs editing.
    ​

  3. Check the products you want to update.

  4. In the top right (under the Import CSV button, enter a new cost.
    ​

  5. Click Save.

>Import / Upload cost per unit for multiple products in a CSV

You can also bulk upload a .csv file with the data.

  1. Navigate to Inventory>Products.

  2. Click the Actions dropdown in top right and select Bulk costs editing.

  3. Click the Import CSV button. A new screen opens.​

  4. Follow the on-screen instructions.

  5. Complete the CSV template using your cost per unit from whichever source you use to manage this data, such as a Google Sheet or an inventory management software.

  6. When complete, click Click here to choose a file and attach the CSV.

    1. Before uploading, verify that the column names match the CSV template and that

    2. you have selected the relevant date format.

  7. After uploading the file, you’ll be able to see all the data, both those that have been uploaded correctly and those that are invalid.

If you have aren't sure how to calculate your accurate costs per unit, check out InventoryIQ, Finaloop's native inventory management system to see if it's a good fit for you.

TIP: To save time, you can first export your products from the Products page (either the whole list or just the ones that are missing a cost per unit) and use this to populate the CSV. Just go to Products, click the Actions dropdown, and select Export.

>Pull costs from Shopify / Amazon

If you see the Shopify logo in the cost cube, it means that we sync this data automatically. If you add or update a cost per unit in Shopify, it will appear here as the current cost of the product.

  • Note that we only pull data from your connected Shopify but don’t push any data back into Shopify. So, any changes you make to the historical cost in Finaloop won't be synced back to your store.

  • The cost per unit values synced directly from Shopify can't be edited in Finaloop. You need to make the change directly in Shopify.

NOTE: Amazon Marketplace Seller doesn't allow adding cost per unit for products.

Merge multiple products

You can also merge multiple products and group them together under one ‘primary’ product. This is a useful feature when you have identical items coming from multiple sources, such as Amazon and Shopify and you want cost updates to apply to products from different sources.

By merging the products, you can update the cost-per-unit once for a single product and have it applied to the others as well.

When merging, you need to select a primary product. Once the merge is complete, the cost of the primary product will be used for COGS calculations, and the merged products will be displayed as a single entity. This merged product will retain the primary product's name, SKU, and photo.

To merge a product:

  1. Navigate to Inventory>Products.

  2. Select the products you want to merge.

  3. Click the Actions dropdown in top right and select Merge Products.

  4. When you get to the Merge Products screen, you can select the primary product by clicking Make Primary, you can also add additional products to merge or remove products.

  5. Click Save.

Note that on the Products page, after the merge, only the product marked as primary will appear. On the Attributes column, you'll see a symbol indicating that this product was merged.

.

Option 2: Track per channel by inputting a total COGS number

Entering COGS per channel is handy if you track COGS outside of Finaloop, such as an inventory management system.

> To add manual COGS (per channel):

  1. On the Inventory>COGS screen, click Report per channel (top right). This opens the New Report pane.
    ​

    1. Type: Select from: All, COGS, Dead inventory, product giveaways, product donations.

    2. Period: Select the period and then date range.

    3. Amount: Enter the value.

    4. Add a note (optional).

2. Click Save. The costs are spread evenly over the selected period.

6. Sales based COGS and Inventory in your financials

Under the sales based COGS method, your inventory is shown in your balance sheet and your COGS will be shown in your P&L as the products are sold (or, if working with the per channel method, when you input the channel COGS data into Finaloop).

  1. Navigate to Reports>Balance Sheet to see your inventory broken down by the status per your updates on the Purchases page.

  2. Navigate to Reports>Profit & Loss to see your COGS. You can find them here with many sub categories so you can track in real time which costs are going where.

  3. For sales based COGS, here’s where you will see transactions for product giveaways and dead inventory:

  • Product giveaways: Operating Expenses/Advertising & marketing

  • Dead inventory: Cost of Goods Sold/Other Cost of Goods Sold.

7. What’s InventoryIQ?

If you are looking for a better way to manage your costs per unit, we’ve created another method to track sales-based inventory! If you want to track stock at a SKU level, automate landed cost calculations or record real-time COGS on a first-in-first out (FIFO) method, then we’ve got you covered.

To find out more about InventoryIQ, head over to the article on how to choose your COGS tracking method in FInaloop and check out the video Choosing your Finaloop COGS Method.

If you’ve decided that InventoryIQ is the route for you, then head over to the article on InventoryIQ and check out the video how to use InventoryIQ.

Did this answer your question?