Cost of Goods Sold (COGS) is the direct cost of producing the goods sold during a period — materials, direct labor, manufacturing overhead. Subtracted from revenue to calculate gross profit. Excluded from COGS: sales, marketing, R&D, G&A (those are operating expenses). For service businesses, the equivalent is Cost of Services or Cost of Revenue. COGS recognition follows the inventory method (FIFO, LIFO, weighted average). Gross margin (Revenue – COGS) / Revenue measures pricing power and production efficiency. A retailer might run 40% gross margin; a SaaS company often 75-85%. COGS analysis identifies opportunities for sourcing, manufacturing, and pricing improvements.
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Cost of Goods Sold
August 22, 2026 · Aditya Gupta
Accounting
Related terms
Accounts Payable
Accounts Payable (A/P) is money a company owes to suppliers for goods or services received but not yet…
Accounts Receivable
Accounts Receivable (A/R) is money owed to a company by customers for goods or services delivered on credit.…
Accrual Accounting
Accrual accounting recognizes revenues when earned (regardless of cash receipt) and expenses when incurred (regardless of cash payment)…
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An accrued expense is a cost recognized in the income statement before cash is paid — recorded as…
Amortization
Amortization is the systematic allocation of intangible asset cost over its useful life — analogous to depreciation but…
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