Bookkeeping & Reporting

Cost of Goods Sold

Cost of goods sold, or COGS, is the direct cost tied to producing or purchasing the items a business sells.

Quick answer

Cost of goods sold, or COGS, is the direct cost tied to producing or purchasing the items a business sells.

It matters because gross profit and gross margin depend on whether direct costs are recorded accurately.

A retailer may include inventory purchase cost and certain direct freight costs in cost of goods sold.

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Plain-English Definition

What Cost of Goods Sold means

Cost of goods sold, or COGS, is the direct cost tied to producing or purchasing the items a business sells.

Why it matters It matters because gross profit and gross margin depend on whether direct costs are recorded accurately.
Simple example A retailer may include inventory purchase cost and certain direct freight costs in cost of goods sold.
Related Questions

Questions people ask about Cost of Goods Sold

What does Cost of Goods Sold mean?

Cost of goods sold, or COGS, is the direct cost tied to producing or purchasing the items a business sells.

Why does Cost of Goods Sold matter?

It matters because gross profit and gross margin depend on whether direct costs are recorded accurately.

What is a simple example of Cost of Goods Sold?

A retailer may include inventory purchase cost and certain direct freight costs in cost of goods sold.

When should I ask a CPA about Cost of Goods Sold?

Ask a CPA when the term changes how your books are kept, how reports are read, or how tax numbers are produced from accounting records.

How is Cost of Goods Sold different from Gross Margin?

Cost of Goods Sold means Cost of goods sold, or COGS, is the direct cost tied to producing or purchasing the items a business sells. Gross Margin means Gross margin is the percentage of revenue left after direct costs of sales are subtracted. The difference is that they apply to different tax, accounting, or business situations and should not be treated as interchangeable.

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