How to expense small supplies like bubble wrap directly to COGS (incidentals)

About

Applies to: Finaloop Core, InventoryIQ

Finaloop lets you expense small supplies like bubble wrap and packing paper (incidentals) directly to cost of goods sold (COGS) instead of inventory, if you use sales based COGS or InventoryIQ, Finaloop's inventory management product. You can also track expenses and associate them with different inventory categories.

Inventory-related costs are reflected in your P&L and balance sheet.
The degree to which you fine-tune the categorization will depend on your business needs and chosen inventory method (purchase based, sales based or unit based using InventoryIQ).
You can treat certain inventory purchases (or incidental purchases) directly as COGS, instead of impacting your inventory or vendor balances. You can also change the default treatment for specific vendors or categories to automate this for you moving forward.

Important: If you are using sales based COGS or InventoryIQ, in certain circumstances, inventory related purchases can be expensed immediately on your P&L instead of being added to the value of your inventory on the balance sheet. Typically, this is allowed for specific purchases of 'incidentals', like bubble wrap or packing paper. Expensing incidentals this way is not relevant if you track COGS using the purchase based method.

What are 'incidentals'?

Incidentals are expenses related to supplies or materials that are not a material part of your actual product or business.

If you purchase specific supplies or materials that are not part of your main product, you have no real system to track the consumption relating to it, and have no beginning or ending inventory balances for this item, you can usually take them as an immediate expense by marking it as an incidental cost.
Common examples of incidental items are bubble wrap, packing paper, masking tape, etc.

Expense a purchase with the category 'Other incidental supplies'

To categorize inventory-related transactions:

Navigate to Transactions and using the search or filter, locate the transaction.
On the relevant row, click the category.
Verify that it's the correct transaction and change the category to Other incidental supplies.
If this is a one-time classification click Apply once, otherwise click Apply always.

Note: When you mark a cost as Other incidental supplies, it will appear directly in your P&L under your COGS section.

Expense a purchase by changing its accounting treatment

Instead of changing the transaction category of the specific transaction, you can change the accounting treatment of specific inventory transactions so it will be treated directly as COGS instead of impacting your inventory or vendor balance.

1. Change the accounting treatment with sales based COGS

To change the accounting treatment for specific transactions if you use sales based COGS:

In the left sidebar, click Inventory, then Inventory purchases.
Select one or more transactions from the list of purchases and click Actions > Change accounting treatment.
From the dropdown, select COGS and click Save.

Note that certain inventory transaction categories, Finished products and Supplies & materials, can't be treated as COGS based on US tax laws. To change the category of the transaction, see Expense a purchase with the category 'Other incidental supplies'.

2. Change the accounting treatment with InventoryIQ

To change the accounting treatment for specific transactions if you use InventoryIQ:

In the left sidebar, click Inventory, then Inventory vendors, and then the Bills & payments tab.
Select one or more transactions from the list of purchases and click Actions > Change accounting treatment.
From the dropdown, select COGS and click Save.

Change default accounting treatment

If a certain vendor or category should always be treated as COGS instead of impacting your inventory or vendor balance, click Purchases settings on the page where you change the accounting treatment (for sales based COGS, open the Accounting treatment tab). Then, click Add rule to add a rule based on vendor name, category, or both to change the default accounting treatment, click Save, and then click Apply.

Tip: You can also click Change default accounting treatment → in the Change accounting treatment window. Rules apply to both past and future bills and payments for the selected vendor and/or category.

Need help?

If you have any other questions, or are still not sure which method makes the most sense for you, contact us at [email protected], we're happy to help!