When you create an invoice for a tracked item, what account is the cost of goods sold recorded in?

When an invoice for a tracked item is created in Xero, the cost associated with that item is recorded in the cost of goods sold account. This is the correct accounting treatment because the cost of goods sold (COGS) represents the direct costs attributable to the production of the goods sold by a company. When an item is sold, its cost is moved from the inventory account to the COGS account to accurately reflect the expense incurred in generating revenue from that sale.

Recording it in the COGS account helps in determining profitability, as this account will ultimately reduce the gross profit when calculating the company's financial performance over a specific period. Properly categorizing these costs ensures that financial statements provide a clear picture of the operational efficiency and overall health of the business.