I think I should add ----- I am pretty sure that "cost of goods sold" is
related only to goods being sold. Yes of course, when providing a
service there may well be costs from consumables used in that service.
But how you account for those costs (when "expensed") is different.
Thus -- the salon ALSO "sells" its customers hair coloring, shampoo,
etc. to take home with them. THESE products, when bought, are not
immediately an expense but are inventory. You get to expense them only
WHEN sold (increase cost of goods sold and decrease inventory). On the
other hand, when you buy shampoo to be used to wash customers hair in
the salon (part of the expense of providing the service) these can be
taken as an expense immediately when purchased. Don't have to wait until
used.
PLEASE NOTE: Organizations often faced with not knowing (when purchased
for inventory) whether will be sold or given. Take "tee shirts". These
might BOTH be being sold to raise money (cost of goods sold) AND
sometimes given to volunteers (recognition). My practice was to treat
new batches of tee shirts as inventory, waiting until known what sort of
expense till sold or given. Only if the ones given to volunteers were
different would I treat that batch as an immediate expense.
I put this bit (about organizations and tee shirts) as it is possible
the hair salon rarely sells product but might, say to a favored
customer. Here we have the reverse situation. The product had NOT been
placed into inventory when the product batch bought but expensed . So
now when sold, we debit "cost of goods sold" and credit that expense
(instead of inventory batch)
Michael D Novack
Expenses
Cost of Goods Sold
Shampoo
Scissor Sharpening
Hair Coloring Product
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