Cogs definition accounting3/20/2024 ![]() How does cost of sales differ from COGS? Both cost of sales and COGS refer to the production costs involved in producing goods or services. Cost of sales is also used to calculate gross profit and gross margin as it is deducted from sales revenue. The cost of sales formula includes different direct and indirect costs, which will affect how the number is calculated. As a key metric used in measuring the cash flow of your business, it’s essential it can be found on your income statement as an expenditure, and can help small business owners estimate their company’s bottom line.įor more on the importance of cash flow, check out our other guides on managing cash flow as a startup, defining cash flow management and how to improve your cash flow management.ĭepending on the nature of products or services your business sells, the calculation can be quite complex. COGS is recorded as a business expense and impacts on how much profit a company makes on its products. Cost of sales doesn’t include selling, general and administrative expenses (SG&A), with these items instead recorded on financial statements under operating expenses as a separate line item. It’s also worth considering what isn’t included in cost of sales. It is the total cost it takes to create, manufacture and sell a product or service. Cost of sales definition You will frequently hear cost of sales also referred to as cost of goods sold, or COGS for short. In this article, we’ll explain more about what cost of sales includes and guide you through the cost of sales formula. This number gives you vital information on the financial health of your business. One of the most important metrics you need, particularly when you’re selling physical products, is cost of sales. However, it can be hard to manage if you don’t understand how money moves around your business. ![]() When it comes to keeping your small business health in check, cash flow is key.
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