You may notice that sometimes receiving inventory posts to the COGS account for seemingly unknown reasons, say when you receive a Purchase Order or post a similar Inventory Adjustment.  Usually the reason is that the balance-on-hand was negative before the receipt, and there has been a change in costs.

Here is an example-based explanation that should help:

1. Assume your company only stocks one part number that costs $100.00.

2. The on-hand balance is 1, so your Inventory Asset account should have a debit balance of $100.00.

3. If you sell 2 of them, your Inventory Asset account will now have a Credit Balance of $100.00, and the on-hand balance will be -1.

4. You need to purchase one more but the cost has changed to $125.00.

5. This receipt would make your on-hand balance 0 and would make your Inventory Asset account have a Debit value of $25.00.

This would not result in good accounting so Spire will Debit the Inventory Asset Account $100.00 to make the balance $0.00 and Debit the other $25.00 to the Cost of Goods account (per the account set up in the Sales Department).

This happens every time that you have a negative on-hand balance and you receive some product and the Average Cost has changed.  The difference will be posted to the COGS account.