What means COGS?

[Fabian Buchner]

Just a easy and short question! What means COGS?

[mission vending]

Cost Of Goods Sold.

[AngryChris]

Costs of Goods Sold generally refers to the entire cost of the good. The COG is generally the cost of the good only... lets say a small 1 oz. bag of potato chips cost $0.23 and you sell it for $0.50. Your COG(Cost of Good) is only $0.23 but once you factor in fuel, overhead expenses, employee wages, etc.... all of the NORMAL expenses that go into earning your revenue... your COGS(Cost of Goods Sold) may be $0.35/unit.

In terms of accounting, it's important to know the difference... but it's a common sense thing when you think about it.... COGS just accounts for all of the expenses going into MAKING the revenue. Things that are "luxuries" and aren't necessary for earning that revenue (employee bonuses, decorations you bought with company money that aren't used for any sort of advertising or marketing, corporate dividents, etc...) are not part of your COGS.

Just remember that COGS factor in everything it took to legitimately earn your revenue... it's sole purpose is to inform the manager/owner of a business regarding net income and profit margins. It has little to do with taxes or anything else... but could be used for making internal business decisions (should I buy a business or sell a business).

[mission vending]

Costs of Goods Sold generally refers to the entire cost of the good. The COG is generally the cost of the good only... lets say a small 1 oz. bag of potato chips cost $0.23 and you sell it for $0.50. Your COG(Cost of Good) is only $0.23 but once you factor in fuel, overhead expenses, employee wages, etc.... all of the NORMAL expenses that go into earning your revenue... your COGS(Cost of Goods Sold) may be $0.35/unit.

In terms of accounting, it's important to know the difference... but it's a common sense thing when you think about it.... COGS just accounts for all of the expenses going into MAKING the revenue. Things that are "luxuries" and aren't necessary for earning that revenue (employee bonuses, decorations you bought with company money that aren't used for any sort of advertising or marketing, corporate dividents, etc...) are not part of your COGS.

Just remember that COGS factor in everything it took to legitimately earn your revenue... it's sole purpose is to inform the manager/owner of a business regarding net income and profit margins. It has little to do with taxes or anything else... but could be used for making internal business decisions (should I buy a business or sell a business).

From Wikepedia:

Cost of goods for resale

Cost of goods purchased for resale includes purchase price as well as all other costs of acquisitions.^[5] This cost should reflect any discounts. Additional costs may include freight paid to acquire the goods, customs duties, sales or use taxes not recoverable paid on materials used, and fees paid for acquisition. For financial reporting purposes such period costs as purchasing department, warehouse, and other operating expenses are usually not treated as part of inventory or cost of goods sold. For U.S. income tax purposes, some of these period costs must be capitalized as part of inventory.^[6] Costs of selling, packing, and shipping goods to customers are treated as operating expenses related to the sale. Both International and U.S. accounting standards require that certain abnormal costs, such as those associated with idle capacity, must be treated as expenses rather than part of inventory.

[AngryChris]

From Wikepedia:

Cost of goods for resale

Cost of goods purchased for resale includes purchase price as well as all other costs of acquisitions.^[5] This cost should reflect any discounts. Additional costs may include freight paid to acquire the goods, customs duties, sales or use taxes not recoverable paid on materials used, and fees paid for acquisition. For financial reporting purposes such period costs as purchasing department, warehouse, and other operating expenses are usually not treated as part of inventory or cost of goods sold. For U.S. income tax purposes, some of these period costs must be capitalized as part of inventory.^[6] Costs of selling, packing, and shipping goods to customers are treated as operating expenses related to the sale. Both International and U.S. accounting standards require that certain abnormal costs, such as those associated with idle capacity, must be treated as expenses rather than part of inventory.

I realized this last night when I was up late doing my taxes. Good thing i'm not an accountant!

So to correct, COGS is just the total price you paid for the item(s) (the final bill divided by the amount of units). But if you are looking for your net operating income, you must subtract all COGS and operating expenses to get your net operating income.

You like to keep me on my toes, don't you mission?

[mission vending]

You like to keep me on my toes, don't you mission?

:-* LOL

Seriously though, its all good. We are here to learn from each other and if I make a mistake I'll expect you to correct me as well.

[AngryChris]

:-* LOL

Seriously though, its all good. We are here to learn from each other and if I make a mistake I'll expect you to correct me as well.

It really is a good thing. Firstly, you are keeping me sharp. Secondly, you keeping popping my ego bubble before it gets too big for everyone else here. And believe me, I know I have an ego. At least I am not a free-loader!