![]() ![]() When the goods are sold, gross revenue is recognized. List of all the goods sold before any sales returns Point of origin When the goods are produced or manufactured, the cost related to goods sold happen. Examples – Direct materials required for the production of goods and services Revenue is recognized as per revenue recognition concept. Accounting standards COGS are not defined under any accounting standards. The credit side of income statement is generally the gross revenue before providing for any expenses. Disclosure in Financial Statement COGS falls under debit side of income statement. ![]() COGS is subtracted from gross revenue to arrive at gross profit. The gross revenue is the output of production process. When Profit margin and indirect costs are added to COGS, it becomes gross revenue. Production linked COGS are directly linked to the production or manufacturing of any finished product. Gross revenue refers to the total goods and services rendered during the organization. The differences between cost of goods sold and expenses are given below: Basis of difference Cost of goods sold Gross revenue Meaning COGS refer to all the direct costs required in making the products or rendering services. Related article Cost of Goods sold for Insurance Company - Explained Cost of goods sold VS Expenses Gross revenue is recognized as per revenue recognition concept accounting standards. Gross revenue is used as a metric and provides a better view of the health of the organization and better comparison among the peer’s companies. Gross revenue is popularly referred to as the top line while net revenue is popularly referred to as the bottom line. There is no consideration for any expenditures from any source. When gross revenue is recorded, all income from a sale is accounted for on the income statement. When deductions are netted against gross revenue, the aggregate amount would be referred to as net revenue or net sales. It indicates the capability of the company to make sales in order to generate a profit. It refers to the total amount of sales recognized for the reporting period before any deductions are made in order to arrive at gross profit. Statement of Cost of goods sold Particulars Amount ($) Amount ($) Beginning inventory of supplies X + Purchases (supplies) X -Purchases returns X + Direct labor (salary, wages) X Cost of goods and services XX -Ending inventory (X) Cost of goods sold XX Gross revenue The other costs that cannot be easily traceable and cannot be linked to the product are not associated with being the cost of goods sold. These are easily traceable costs and can be easily identifiable from looking at the products. It is basically the direct materials, direct labor, and direct expenses involved in making the products. Cost of goods sold refers to the costs involved in making the goods or services that are being sold. ![]()
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