When setting up your accounts, it’s important to know when to use a Cost of Sales component versus an Inventory component.

Cost of Sales

Use Cost of Sales to track direct costs linked to a sale.
Examples include:

• Transaction fees (e.g. a percentage charged by your payment gateway)

• Products you sell on demand (you don’t keep stock, but purchase items as orders come in)

This approach is useful when you don’t hold physical stock but still want to record the cost of fulfilling each sale.

Inventory

Use Inventory when you:

• Buy items in advance and keep them in stock

• Want to track both the cost of goods sold and the value of unsold stock

Inventory includes the same direct cost element as Cost of Sales, but it also adds a balance sheet element—showing the current value of your remaining stock.