For a small business I was carrying Cost-of-Goods-Sold (COGS) as an
expense item. When my CPA filed the taxes, I noticed that he placed it
as a deduction to revenue. So, after a chat with the in-house
accountant, I moved COGS to be under the Income parent.
Thankfully, the internal representation for amounts still worked
correctly and the COGS account now showed as a reduction to Income
without me having to go change the sign on each transaction.
That's a matter of choice. I have never done a "business" tax filing but
a non-profit has to show total sales and cost of goods sold (line
items). You can of course put both under a "goods revenue" parent.
Accounts of type income and type expense are both temporary accounts of
fundamental type equity and are simply the inverse of each other. In
other words, expense accounts normally have a debit balance and income
accounts a credit balance. You can put COGS as a "contra" income account.
BUT -- people who make a lot of use of contra accounts MIGHT be better
off with the "formal" option (debit and credit) as the "user friendly"
column titles will be misleading for contra accounts.
Michael D Novack
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