Wholesaling Entity P&L, COGS vs Operating Expenses?

[Daniel L.]

I’m ignorant when it comes to accounting…Does anyone have a P&L template that’s best for a strictly wholesaling entity to present to third parties accustomed to reading P&L statements? I see the P&L template in the fileplace…unfortunately it only covers rentals.The most common P&L template I keep seeing around the internet first breaks down as follows…

SALES – COGS = GROSS PROFIT.

GROSS PROFIT – Op Expenses (advertising, travel, phone, legal, etc)

= NET PROFIT BEFORE INCOME TAXES

I’m guessing expenses that wouldn’t exist if a specific contract hadn’t otherwise been proffered should be recorded as OE and expenses attributable to specific assignments/simultaneous closes should be reflected as COGS?

E.G. on assignments COGS would be (net cost of earnest money funds, possible fee(s) to third parties during inspection period, cost to record memorandum of contract if necessary)

On simultaneous closes possible COGS would be the same as assignments with the addition of closing costs/transfer taxes.

What about when earnest money is put up, inspection fails and escrow funds are returned…is that still recorded to COGS?

Most P&L templates list legal as OE but I’m guessing when the business needs to spend additional money for legal on contract doc preparation brought on because of a unique deal of which existing contract templates don't cover…that would be recorded to COGS?

[J Scott]

Originally posted by Dev Horn:

Income from buying and selling RE is ordinary income, so whether you record your expenses by the deal or just all in OE, the result will probably end up the same.

Revenue - Expenses = Income

Differentiating COGS vs Expenses will most likely play a role for transactions that span a fiscal year. In general (there may be some exceptions), expenses can be deducted in the year in which they occured; COGS can't be deducted until revenue is recognized.

In my business (rehabbing), any expenses associated with properties held in inventory (purchase costs, rehab costs, holding costs, marketing costs, etc) are COGS; pretty much everything else is expense.