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Inventory tracking and COGS reconciliation

COGS aims to fill in the other half of the reconciliation process by sending invoices to Xero to account for the costs you incur when you sell your products.

NOTE: The Stock & Inventory Sync is supported on the Standard, Pro, and Unlimited plans, but the actual COGS Reconciliation feature is available only on the Unlimited plan.

Xero offers different ways to manage SKUs, inventory, and reconciliation and Reconcilely can fit nicely into your workflow based on your use case.

How Xero will do its inventory management is first determined by how your item codes are created:

Tracked inventory will defer inventory management to Xero. As you record sales against those products, the accounting software will automatically tick inventory up/down for you. While this solution has limitations, it often is good enough for many cases. If you sell tracked inventory, Xero will try to adjust your accounts for you.

We don't currently support syncing inventory amounts between Xero and Shopify. Xero only allows us to "update a consumption of an item by a sale" in the current version, it does not let us update the amount available.

Untracked inventory is used if you do not plan to track inventory or prefer to use a third-party inventory management software, as the product inventory will not be automatically adjusted by the accounting software (ie. Xero).

With COGS reconciliation, you can have Reconcilely make the inventory and COGS adjustments in custom ledger accounts of your choosing, while also sending an additional invoice for each order to account for the costs withdrawn from your accounts.

For example, if a customer purchases product ABC1 for $49.99 and ABC1 has a landed cost of $12.50...

You would want two invoices created in Xero:
- One invoice for $49.99 to account for the sales deposited into your accounts
- One invoice for $12.50 to account for the costs of goods sold withdrawn from your accounts

Here’s how it works:

First, in your settings, turn on Active Inventory Management.

Once enabled, you’ll be able to choose the expense and asset accounts to be adjusted for you.

The visual in the settings will help you understand how the workflow will change based on your selection. By default, Reconcilely is set to ‘Semi-Active,’ which only creates SKUs but does not make any inventory or COGS adjustments, leaving that process entirely to Xero.

Lastly and most importantly, you should visit the Costs section, which will pull all of your products, SKUs, and cost values directly from Shopify.

To save some space, product variants are organized into product parents, and automatically contracted. You can expand any product to see its variants’ SKU and Cost, and make adjustments directly into the table.

The COGS feature works in conjunction with Shopify, reading the cost values of each product directly from there. Reconcile never saves any cost information to its databases, and only reads/writes to and from Shopify directly.

Consequently, adjusting costs in the Costs section will also update your costs on Shopify.

The accuracy of the COGS feature depends on every product having a cost value, otherwise it will be skipped. If you don’t have any cost values defined, you can use the ‘Upload Costs’ button to open a bulk upload tool we’ve created to help simplify cost backfilling and future updates.

First, download the CSV which will include all of your products as well as a ‘Cost’ column. Simply fill in the values into that column and re-upload the same file back to Reconcilely.

It may take some time, but the sheet will be processed and all costs from the sheet will be attached to their respective variants. It is worth noting that your cost update will also be reflected on Shopify, as that is where we pull information from.

From there, the goal is simply to maintain as close to 100% COGS accuracy as possible, and this can be accomplished by ensuring every product variant has a SKU and a cost value, such that costs can be properly calculated if and when an order containing variants with a cost is detected.

Some other details about the feature:

Whenever you incur costs, Reconcilely will automatically debit and credit the COGS and inventory accounts you define in your COGS settings. The process will be reversed if a refund happens.

Reconcilely will read your variant costs directly from Shopify. A handy tool has been created to allow you to adjust costs in bulk by downloading a CSV of missing costs that you can re-upload

Your account will receive a 'COGS Accuracy' score representing the percentage of published variants that have a cost. If your COGS aren't 100% accurate, you'll know exactly why!

As you add new products to Shopify, they will appear in this section so you can add in your landed cost one-by-one or in bulk.

Since it’s in Beta, you may not see the COGS Reconciliation feature in Reconcilely. To get access, simply get in touch with us over Live Chat.

Updated on: 28/08/2023

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