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Entering Form 1125-A, Cost of Goods Sold in Lacerte

by Lacerte Tax 2023 Updated 10 months ago

Select your module below for instruction on how to enter cost of goods sold in the program:

  1. Go to Input Return > Income > Cost of Goods Sold.
  2. Scroll down to the Cost of Goods Sold section, enter any applicable information.
    • The amounts entered will flow to Form 1120, page 6, line 3.
  3. Under the Inventory Information (Form 1125-A) section, enter any applicable information.
  1. Go to Input Return > Ordinary Income > Cost of Goods Sold (1125-A).
  2. Scroll down to the Cost of Goods Sold (1125-A) section, enter any applicable information.
    • The amounts entered will flow to Form 1065, page 5, line 6.
  3. Under the Inventory Information section, enter any applicable information.
  1. Go to Input Return > Ordinary Income > Cost of Goods Sold (1125-A).
  2. Scroll down to the Cost of Goods Sold (1125-A) section, enter any applicable information.
    • The amounts entered will flow to Form 1120-S, page 4, line 3.
  3. Under the Inventory Information section, enter any applicable information.

Common questions about cost of goods sold (COGS)

You should only enter the beginning and ending inventory for a balance sheet if they're different from the beginning and ending inventory entries for the cost of goods sold. Select your module below for instructions.

  1. Go to Screen 37, Balance Sheet.
  2. Under the Assets section, enter the Inventories (if different from from inventory entries in Cost of Goods Sold) field.
  3. Enter any applicable amounts in the Beginning and Ending columns.
  1. Go to Screen 24, Balance Sheet.
  2. Under the Assets section, locate the Inventories (if different from COGS) field.
  3. Enter any applicable amounts in the Beginning and Ending columns.
  1. Go to Screen 29, Balance Sheet.
  2. Under the Assets section, locate the Inventories (if different from COGS) field.
  3. Enter any applicable amounts in the Beginning and Ending columns.

The Cost of Goods Sold (COGS) shows up on Form 1120, line 2 as a negative amount and is added to the income instead of subtracted from it. Here's why:

If you look at the Form 1125-A for the COGS calculation, you'll see that line 7, Inventory at end of year, is greater than line 6, Total. When you add lines 1 through 5, the result is a negative amount on line 8, which is then transferred to Form 1120, line 2.

On Form 1120, line 2 is subtracted from Line 1e. Since line 2 is negative and being subtracted, it's added to Line 1e and a gain is recognized for the difference between the costs incurred and the value of the inventory.

Form 8916-A, Supplemental Attachment to Schedule M-3, is required when cost of goods sold, interest income or interest expense is included on the return. You have to enter it manually. Refer to this article for information on generating Form 8916-A in the program.

Lacerte Tax

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