Selling produced goods and COGS

Selling Produced Goods and COGS

When you sell a product that you manufactured in-house, Usystems automatically calculates and posts the Cost of Goods Sold (COGS). This article explains how that works and what you need to know.

Before you start

• The product must be in stock (produced and available in your warehouse).
• The product must have a production cost already calculated in its BOM.
• You have permission to create invoices and sales transactions.
• You understand what COGS is: the direct cost to produce the goods you sold, which is deducted from revenue to calculate gross profit.

The automatic flow

When you create an invoice and add a manufactured product:

1. Usystems reads the product's production cost from the finished goods inventory.
2. The product is deducted from stock at cost (not at selling price).
3. A COGS entry is automatically created in your accounting ledger:
   • Debit: Cost of Goods Sold (expense account)
   • Credit: Finished Goods Inventory (asset account)
4. The amount posted is: Quantity sold × Production cost per unit.

This happens immediately when you save the invoice (or mark it as confirmed, depending on your system settings).

Steps: How to sell a manufactured product

1. Go to Invoices and click New Invoice. Open in Usystems

2. Select your customer.

3. In the Items section, add the manufactured product:

   • Click Add Item or Add Line.
   • Search for and select the finished product (the one you produced).
   • Enter the quantity you are selling.

4. Usystems automatically fills in:

   • The selling price (from the product's price list).
   • The production cost (for COGS calculation internally).
   • The invoice total and any discounts or taxes.

5. Review the invoice and click Save or Create.

6. If your system requires approval, mark the invoice as confirmed. The COGS entry is posted at this point.

Understanding the accounts

When the COGS is posted:

• Finished Goods Inventory (asset) is credited (decreased) by the production cost.
• Cost of Goods Sold (expense) is debited (increased) by the production cost.
• Your gross profit is calculated as:
  • Revenue (selling price) minus COGS (production cost).
  • For example, if you sell a shirt for 500 AFN and its cost to produce is 160 AFN, your gross profit is 340 AFN.

What you see in reports

• Sales reports show revenue by product, and can break out COGS separately.
• Profit & Loss statement shows your gross profit (revenue minus COGS).
• Inventory report shows remaining finished goods at cost value (not selling price).
• Production costing reports (if available) let you compare actual COGS to your BOM estimates.

Tips & common mistakes

• Pricing must cover cost. Make sure your selling price is higher than the production cost, or you will lose money on each sale.
• Stock must exist first. You cannot sell more than you have produced. Usystems will not let you oversell.
• COGS is automatic. You do not need to manually post COGS entries. Usystems does it for you when you confirm an invoice containing a produced item.
• Review your margins regularly. If COGS creeps up (because component prices increased), you may need to raise selling prices to stay profitable.