The difference between Cost of Sales and Inventory

Before we start, it is worth understanding when to use a Cost of Sales component and when to use an inventory component.

Cost of sales is used for modelling a direct cost related to a sale. For example, if you are selling products online through an online payment gateway, you may have a percentage charge for every transaction you make. 

You may also want to use cost of sales for products you sell to order, where you don't actually hold inventory but just buy what you need based on the orders coming in. 

Inventory is used for modelling items that you buy, often in advance, then sell. It has the same direct cost element of cost of sales but it also models the value of stock in your storeroom. This means there is an additional balance sheet element to inventory that is not present when just using cost of sales.