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COGS or Expense

I'm confused about the difference between COGS and an expense.

 

Our company does maintenance repairs and turns for rental properties.  Most jobs include buying materials to do the repairs or it could also be purchasing new appliances, or painting.  Whatever the property owner wants to do to be able to rent it. 

 

Would all those cost associated with each job and included in the total invoice sent to the owners be counted as an expense or COGS? 

 

What about tools purchased and used for all work, such as buying a saw?

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2 Replies
ee-ea
Level 15

COGS or Expense

Supplies are the stuff used up in getting the work done or stuff turned over to the client. COGS is inventory. Stuff on shelves sold to buyers i.e. Corn Flakes in a supermarket.

BillM223
Employee Tax Expert

COGS or Expense

I agree with ee-aa. COGS is the cost of the tools needed, parts needed, and anything directly to getting the product repaired.

 

What's not COGS is all your back office expense, like payroll, staffing not directly related to product repair, office rent and utilities, company picnics, and so on. 

 

As you can imagine, there may be grey areas. You may want to review IRS Pub 334 and look at Chapter 6 (How to figure Cost of Goods Sold).

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