Difference between Cost of Goods Sold and Cost of Sales
Basis |
Cost of Goods Sold (COGS) |
Cost of Sales |
---|---|---|
Definition |
Represents direct costs tied to production or purchase of goods. |
Encompasses all costs directly or indirectly associated with generating revenue, including COGS. |
Scope |
Focuses specifically on the costs related to goods sold. |
Encompasses a broader range of costs related to the entire sales process. |
Components |
Includes costs like raw materials, labor, and direct production overhead. |
Includes COGS and additional costs like distribution and transportation expenses. |
Usage |
Commonly used in manufacturing and production-oriented business |
More inclusive and used in various industries. |
Calculation |
Calculated by subtracting closing inventory from the sum of opening inventory and purchases. |
Derived from the total costs associated with generating revenue. |
Tax Deductions |
Often tax-deductible |
May include tax-deductible expenses beyond COGS. |
Understanding the distinction between COGS and Cost of Sales is crucial for accurate financial analysis and reporting.