USA Simple Question about COGS

[DR01D]

I have a simple question about Cost Of Goods Sold.

I own a tree company and I recently purchased a wood chipper for $42,000. My monthly payment is $818.09.

Is that payment included in COGS because the wood chipper is used in daily work? Or is that payment included in Financial Expenses because it is a payment on a loan?

Thank you so much for any help!!!

 

[kirby]

Include as Financial Expenses because it is a loan payment.

 

[DR01D]

Thanks Kirby!

Just a small follow-up question.

If I had purchased the chipper for cash would it be included in COGS?

 

[kirby]

No, COGS is typically used in a business where you produce goods for sale. So in that case you pay for many components to create the things for sale. And when you sell some of those things you use costing methods to figure out how much cost was associated with what you sold. And that is the Cost of Goods Sold.

 

[ahmad_126]

Does $818.09 is the payment for principal or is it interest. If you are paying $818.09 as interest and the original loan 42000 will remain the same, then it will be financial expense.
If $818.09 includes both principal and interest, then get the schedule of payment from you vendor calculate financial expense and liabilities accordingly.

 

[Counterofbeans]

I'm confused...

This seems to be a simple fixed asset purchase.

In my mind, I'd do the following:

On acquisition: Dr. Fixed Assets and Cr. (some sort of) Loan Payable (broken into current and LT portions).

When a payment is made: Dr. the Loan Payable, Dr. Interest Expense (a non-operating expense) and Cr. Cash.

The wood chipper is subject to depreciation expense, over its estimated useful life. While I know little about the tree industry, a wood chipper sure seems like a cost related to sales. As such, when recording depreciation expense related to this wood chipper, I would include (map) the Dr to cost of sales via: Dr. Depreciation Expense and Cr Accum Depreciation.

It makes no difference whatsoever if the wood chipper was paid for cash, loan or (capital) lease in regards to where the depreciation expense hits the P&L, it always should be depreciation expense and probably recorded/mapped to cost of sales.