I have a small business doing computer consulting. Sometime I purchase parts for the client. Within quickbooks I track these parts as non-inventory type items.
My question is this. There seems to be two ways to track this within Quickbooks.
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Method 1:
I setup an account called Equipment sales as an income account. Under this I have a sub account called Sales and another account called cost of goods sold. Both of these accounts are income type accounts because they are sub accounts of the Equipment Sales income account.
When I buy a part I write a check and put the check against the cost of goods sold (income sub account) account. When I sell the part I use the Sales (income sub account) account. The net result is I can look at the Equipment sales main account and see a good summery of everything done. Because i am using sub accounts to track the debits and credits the main account will quickly show a net sales number for all my profit from equipment sales. The only downside I see to this is that my cost of goods sold does not show up in the expense section of a P&L since it was recorded as a negative under an income account.
Method 2:
Create a main account called Equipment sales as an income account. Create a main account called Equipment purchased as a COGS account. In my non-inventory item I will set the sales account as the income account and the COGS account as the expense account. This will make the information show up on the P&L but will not make it as handy to get a net profit figure for just the equipment sales.
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I know I am probably splitting hairs here but is there an issue with using one method over the other from an accounting standpoint.
Thanks,
My question is this. There seems to be two ways to track this within Quickbooks.
--------------------
Method 1:
I setup an account called Equipment sales as an income account. Under this I have a sub account called Sales and another account called cost of goods sold. Both of these accounts are income type accounts because they are sub accounts of the Equipment Sales income account.
When I buy a part I write a check and put the check against the cost of goods sold (income sub account) account. When I sell the part I use the Sales (income sub account) account. The net result is I can look at the Equipment sales main account and see a good summery of everything done. Because i am using sub accounts to track the debits and credits the main account will quickly show a net sales number for all my profit from equipment sales. The only downside I see to this is that my cost of goods sold does not show up in the expense section of a P&L since it was recorded as a negative under an income account.
Method 2:
Create a main account called Equipment sales as an income account. Create a main account called Equipment purchased as a COGS account. In my non-inventory item I will set the sales account as the income account and the COGS account as the expense account. This will make the information show up on the P&L but will not make it as handy to get a net profit figure for just the equipment sales.
---------------------
I know I am probably splitting hairs here but is there an issue with using one method over the other from an accounting standpoint.
Thanks,
