Cost of Goods Sold
Cost of goods sold (COGS) is the direct cost of producing or purchasing the products your business sells. It includes materials, labor, and manufacturing overhead — but not rent, marketing, or admin costs.
Cost of Goods Sold Definition
Cost of goods sold (COGS) represents the direct costs attributable to producing or purchasing the goods your business sells. It appears on your income statement and is subtracted from revenue to calculate gross profit.
What's Included in COGS?
What's NOT Included in COGS?
COGS for Service Businesses
Service businesses have Cost of Services instead of COGS — it includes the direct labor and materials used to deliver the service (e.g., a consultant's time, a cleaner's supplies).
How COGS Works in QuickBooks
In QuickBooks, COGS accounts appear in the Cost of Goods Sold section of your chart of accounts. When you create purchase orders, bills, or expenses and categorize them to COGS accounts, they flow to your P&L automatically.
FAQ
Q: Why does COGS matter?
A: COGS determines your gross margin. If COGS is too high relative to revenue, you're not charging enough or your production is too expensive. It's the first number to check when profitability drops.
Related Terms
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Related Terms
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