Cost of Sales VS Inventory Cost

Hi, what is the difference between Cost of Sales (in Inventory Profit Margin) and Inventory - cost (in Profit & Loss Statement)


The Sales are the same, but Cost are different. Can anyone enlighten me?

Thank you

The Cost of sales column on the Inventory Profit Margin report is the sum (during the defined time period) of average cost of inventory items sold multiplied by their quantitites. In other words, it is the cost of goods sold for each inventory item listed.

Inventory - cost is the expense account where the cost of goods sold or returned for all inventory items is posted during the period.

They do not necessarily agree because not all transactions are included in the Inventory Profit Margin report. For example, credit notes are not included. Nor are sales of inventory items sold as part of inventory kits (because there is no good way to apportion kit price among kit components, and kits have no average cost.

ah, ok, thank you

but i can see credit note in the Inventory Profit Margin

I apologize. I made a mistake when entering a credit note in my test business to investigate your problem. You are right, credit notes contribute to the Inventory Profit Margin report. The rest of my response remains true. That is, inventory kits are not included.

As another example, the effects of inventory write-offs are not included, although they can lower overall profitability for an inventory item. (You have the purchase expense, but no income. The purchase expense is transferred to the account where the write-off is posted.) Zero-value sales invoices also do not appear.

My overall message is that the Inventory Profit Margin report covers only simple, straightforward sales of inventory items, where you sell the item to a customer at some positive price and its current average cost is posted to the Inventory - cost account.

So if I have back orders (selling negative stocks), which one is more accurate if I want to find the nett profit?

  1. The profit and loss report, or
  2. Gross profit in Inventory Profit Margin minus the overall cost (except Inventory - cost)?

Because it seems I have way too much profit because I was selling something that I didn’t own (back orders). One of the way, I moved the minus stocks sales to the next month using Journal Entries.

The P&L statement gives you net profit on the business, based on your accounting method (cash or accrual). But that is different from gross profit margin on inventory sales. Either way, there are impacts in the current period due to insufficient quantities on hand. The program waits until additional quantities are purchased before assigning costs of goods sold. If this is your regular practice, you may be searching for the wrong management information for your business model. (There’s nothing wrong with doing that. )

Changing dates of sales misrepresents your performance and is illegal in most jurisdictions.

Would you not create Purchase Invoices for these assuming you use accrual accounting? If so then these would appear as COGS and thus show-up in the P&L and affect Net-Profit even though you may not have made the financial transaction (= actual payment of that Purchase Invoice). In short in such way you would not distort the net profit or do potential illegal stuff with the Journal Entries.

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i did not change the dates of sales invoices, just i calculated the back orders, then move the using Journal Entries to the following month. it works, but the problem is the Nett Profit in P&L Report is so much different than in Gross Profit in Inventory Profit Margin - Expenses.

You manipulated the recognition of income. That can put you in serious trouble.