Cost Of Goods Sold or COGS tracking is a feature within Link My Books that allows you to keep a track of the cost of the units sold during any given settlement period.
In this article we will cover:
- How the COGS feature works
- How to set up and turn on the COGS feature
Section 1 - How the COGS feature works
Link My Books imports your Amazon settlements as they become available inside Amazon. We also import your order list. By combining both of these reports we can then generate a list of all the products you sold during any given settlement.
We then take your landed product costs (which you input - more on that in the next step) and use those to calculate the total value of all of the units sold during a given settlement - your cost of goods sold.
We use this figure to generate a bill to send to Xero.
The bill will decrease the inventory value and increase the cost of goods value by the figure we calculated. Below is an example bill:
Let's break down the 4 lines of the above bill for clarity.
Line 1 - "Inventory Deduction From Fulfilment by Amazon (FBA)" is the COGS figure being deducted from an asset account, in this case "Stock".
Line 2 - "Cost of Goods Sold Fulfilment by Amazon (FBA)" is the COGS figure being added to a direct costs account, in this case "Cost Of Goods Sold".
Lines 3 and 4 are the same as lines 2 and 3 but they are for units that were not sold through Amazon, eg. manual fulfilment orders. You could choose to send these lines to different accounts if you wished to.
The bill will always balance off to zero as all we are doing is deducting the COGS figure from an asset account and adding the same figure to a direct costs account - so moving the value from an asset to a direct cost so to speak.
Section 2 - How to set up and turn on the COGS feature
When you turn on the COGS feature you will need to set up a few things before it works properly.
Step 1 - Enter your product costs
On the Product Costs settings page you will need to enter your landed costs for each of the items you sell.
You can do this on the table on the page itself or if you have a lot of products you can use the bulk upload option.
How you enter the costs for your products in Link My Books entirely depends on how you currently account for them in Xero or QuickBooks.
If for example you account for "landed costs" of items as:
- Product Cost
- Shipping from supplier to Amazon
- Import Duty
If you are allocating all of the above costs towards an Inventory Asset account then your landed cost you enter on Link My Books should also include all of the above variables too.
If however you only account for the cost price of the item from your supplier to your Inventory Asset account and all other costs such as shipping and duty are accounted for using different accounts other than the Inventory Asset account then the cost price you enter on Link My Books should reflect that.
In this scenario you would enter your product costs on Link My Books taking only the cost price of the items from your suppliers into account and excluding the shipping and duty since that is accounted for separately.
Step 2 - Turn on COGS and select your asset and direct costs accounts
When you turn on the COGS feature on the Settlement Settings page you will be prompted to select an asset and a direct cost account for each of the 3 fulfilment types.
If you haven't already got an asset account for your Amazon Inventory and a direct cost account for your Cost Of Goods Sold then you will need to create both of those in Xero or you can also choose to use our default accounts and then we will create them in Xero for you.
You should check your chart of accounts in Xero before creating these as you may already have them.
The screenshot below shows the table of asset and direct cost accounts.
Once you complete the 2 steps above we will refresh all of your settlements (excluding ones that have already been sent to Xero) and you will see a new COGS tab on the view settlement pages, as shown below:
Once COGS is turned on, we will from then on send both the Sales & Fees Invoice and the COGS Bill to Xero when you click Send Settlement.