Tax time: COGS, inventory value and your expense summary

Once a year, your accountant, your tax software or you at the kitchen table needs one number: what did the things you sold cost you? This page is about getting that number out of OrderDen, and showing how it was worked out.

You don't need to know accounting to use it. You do need to have recorded what you bought and what you made.

The short version

Reports → Cost of goods sold. Pick the year, read the last line, and export it to CSV or PDF for your accountant.

The rest of this page is what the lines mean.

Cost of goods sold

The statement has 8 lines, in the order a tax return asks for them. Here's a candle maker's first year:

She started the year with $1,200 of wax and jars on the shelf, put another $6,855.51 of goods and time in, and finished with $1,845.20 still on the shelf, so $6,210.31 went out the door as candles.

Where each line comes from:

• Inventory at the start: what your stock was worth the day before the period, at average cost.
• Purchases: everything received into stock in the period, at its landed cost (with freight and tax when the purchase's Carry freight and tax into unit cost box is ticked, which it is by default).
• Cost of labor: the hands-on time recorded on the production runs you completed, at your hourly rate.
• Materials and supplies: purchase lines for materials you don't track as stock, plus expenses in a category that counts as cost of goods, with the sales tax you paid on them. An expense category with no tax line whose name is a supplies word ("Supplies", "Packaging", "Postage", "Shipping" and similar) counts here too. Anything you track as stock is already in Purchases, so it isn't counted twice.
• Other costs: the overhead your batches carried (the share of the workshop's running costs your bills of materials add), plus purchase lines in a cost of goods category that aren't for a material or tracked stock.
• Inventory at the end: the same valuation, on the last day of the period.

Stock that moved before it had a cost has no value on the ledger. The report counts those movements under the statement ("3 stock movements have no cost in this period") rather than valuing them at $0. Give the item a cost, or record what it cost, before relying on the figures.

Drilling in

Most lines link to the rows behind them. Purchases opens the deliveries, Cost of labor and Other costs open the production runs, and the inventory lines open the movement ledger. Materials and supplies opens the period's purchases; its expense part has no link. Goods available for sale and Cost of goods sold are sums and don't link.

Show as Schedule C Part III

The lines follow the US Schedule C form, and the Show as Schedule C Part III toggle prints its line numbers and wording. The arithmetic is the same either way.

Does it tie out?

Under the statement, a panel reconciles it against the stock ledger. The two are expected to differ.

The statement works out cost of goods the way a tax form does: what you started with, plus what went in, less what you ended with. The ledger works it out from what left on a shipment. The difference is everything that left the shelf without being sold:

• Waste written off: material spoiled on a run.
• Adjustments and stock counts: damage, gifts, samples, shrinkage and the differences a stocktake booked.
• Opening balances entered in the period: stock you counted in without buying it, usually the day you turned tracking on. It raises inventory with no purchase behind it, so it lowers the statement's cost.
• Customer returns: goods that came back.
• Materials and supplies never held as stock: consumables used up without a movement recording them leaving.

Add those to what shipped and you get the statement's figure. A difference under 5 cents is shown as Rounding to the nearest cent. A bigger one means something the panel has no line for: stock used on or returned from a project, or a purchase line counted in Other costs. The movement ledger shows which.

Finished stock at year end

A batch you made in December and hadn't sold by the 31st is inventory: it's on your shelf and it's worth money. So a big batch finished near year end raises your ending inventory and lowers your cost of goods by the same amount. The cost belongs to the year you sell it in, not the year you made it.

Inventory valuation

Reports → Inventory valuation shows what your stock was worth on any date, not only today. Pick December 31 and you get the figure line 41 uses, give or take a few cents: the report rounds each row, and line 41 rounds the total once.

Each row is an item, or a variant where that's where the stock is, with the quantity on hand, its average cost and what that comes to. The totals group materials and supplies apart from finished goods, and by category.

It's a sum of what each stock movement was worth when it happened, so a past date reads the same ledger. A movement entered later but dated earlier (an opening balance, a production run completed with an earlier date) changes that earlier figure.

Expense summary for tax

Reports → Expense summary for tax is the companion. Cost of goods sold covers what the goods cost; this covers the rest (advertising, rent, software, insurance, mileage), grouped by the Schedule C line each belongs on.

It reads the spend category on every purchase and every expense, so it's as good as your categories. A category's own tax line decides where it goes. When a category has none, OrderDen recognizes the words most makers use ("Advertising", "Software", "Rent"). Anything it still doesn't recognize is listed under Not mapped yet instead of guessed.

Categories that count as cost of goods go on the cost of goods statement instead, and the summary says how much went that way.

Expenses and purchases are both counted with the sales tax you paid on them. Sales tax isn't refunded to your business, so it's part of what the spending cost you, and your deduction includes it. Tracked stock on a purchase is left out, whatever its category: it's cost of goods once it's received, so it's on the statement and never on this summary as well. What a purchase adds here is its other lines, plus any freight that didn't go into the cost of the stock.

For the same spending month by month, and whether the business made money after it, see Expenses by category and profit and loss.

Your year

The presets are calendar years. The report also prints the inventory method it used (weighted average, which is what the stock ledger keeps) and when it was generated.

Sending it on

CSV opens in a spreadsheet, with a header naming the workspace, the period, the method and when it was generated. PDF is a one-page statement with the reconciliation underneath, the thing you email your accountant. Both are noted in your activity trail, so you can tell later which version you sent.

All three reports are on the API too.

If your accountant wants the whole period rather than a statement, the accounting export hands over the documents behind it.

OrderDen gives you your own figures in a shape a tax form recognizes. It isn't tax advice, and it doesn't file anything for you.