Following these best practices will ensure you have real-time visibility into the state of inventory, allowing better cash flow control and purchasing decisions. Conduct periodic stocktakes to count physical inventory. Make adjusting entries in Xero to sync the system to actual stock on hand. Access Xero features for 30 days, then decide which plan best suits your business. If the numbers of a physical stocktake closely match the numbers in your financial records, you may be able to wait longer till your next one.

Deciding what is and isn’t COGS

Service-based businesses tend to use the phrase cost of sales (COS). Use inventory management software to monitor stock levels in real-time. This provides visibility for purchasing, sales, and operations planning. Record all inventory purchases in Xero by creating a purchase order or bill. When creating the bill, select the inventory account from the “Account” drop-down menu and enter the cost of the inventory item in the “Unit price” field. Businesses need to know the cost of serving customers in order to set competitive and profitable prices.

Linking Purchase Invoices to Inventory Items

This section will cover key tips for linking purchase invoices to inventory items and managing supplier relationships through purchase orders. But for many small businesses, cost of goods sold Xero’s built-in tools are sufficient to track stock quantities and maintain accurate inventory records. Create individual inventory items in Xero for each product you stock.

Accounting software

It’s not a good idea to go low unless you have a steady supply chain and expect a lot of sales. Compare that number to what you have on your balance sheet. Generally there will be less in reality than on the books. That missing inventory is generally assumed to have been damaged and dumped, or stolen. Record the cost of goods sold by creating a journal entry.

For most small businesses, cost of sales are the same as direct costs. Maintaining tight stock controls and visibility provides a key foundation for managing finances, sales, and operations. Xero provides several useful features to help businesses efficiently manage inventory and stock levels. The business performance dashboard gives valuable insights into inventory health, while reorder points and alerts enable proactive stock control. Untracked inventory records inventory value in aggregate without tracking individual items.

Learn how to start a business, from ideation to launch. Start by working out your COGS, so you know the least you need to make on a sale. And then use some of the pricing strategies outlined here to work your way toward a ticket price. Now that you know your COGS, you know the minimum amount you have to charge to make money. But it helps to have a system to work out what you should add. Once you have created the necessary accounts in Xero, you can return to A2X.

When you buy an inventory item, it is recorded as a cost and an asset. While materials and labour costs are typically easy to figure out, other COGS can catch out beginners. Their COGS will jump significantly to pay for those locations and the freight between them. COGS (also cost of goods sold) is the money a business spends to create, handle and deliver products to its customers.

• This allows you to easily track the value of current inventory.
• Similarly, sales in Xero or synced from a POS will reduce inventory quantities and update cost of goods sold (COGS).
• We’re committed to the security of your data and provide multiple layers of protection for the personal and financial information you trust to Xero.
• They will understand industry norms and can help tell if your margins are too thin.
• Every time you record a purchase and select a tracked inventory item, Xero will select the inventory asset account by default.
• But for many small businesses, Xero’s built-in tools are sufficient to track stock quantities and maintain accurate inventory records.

For each product line, you can simply use the average cost per item. Calculate the cost of ending inventory by taking a physical count of the inventory on hand and multiply the quantity by the cost per unit. All pricing plans cover the accounting essentials, with room to grow. You can simply add a standard markup to everything you sell. Check if there are industry-standard markups, as they can give you a good place to start.

Find out more about Xero’s commitments to data protection and data security. You’ll receive your invoice at the end of your monthly billing period. Use Gusto payroll to calculate pay and deductions, pay employees, simplify compliance, and update the Xero accounts.