5/26/2023 0 Comments Cost of sales vs cogs![]() Cost of revenue, on the other hand, includes all expenses that are incurred to provide a service or. Get your FREE Freight and Shipping Ebook Guide. As weve detailed above, COGS is the cost of goods you sell. For more information about COGS, you can look online at the IRS Tax Guide for Small Business.Ĭontact bookskeep today for more information on ecommerce bookkeeping and accounting. InventoryLab makes it easy to track COGS and Expenses. Typically there is an expense account in the Cost of Sales section of your Profit and Loss Statement for shipping and it is used in this situation. This expense of shipping to the customer is directly related to the sale of the product, so we include it in the Cost of Sales section and include it in the gross profit calculation. Tax deductibility While COGS and cost of sales are sometimes seen as synonymous terms, conflating the two can cause further issues come tax time. The cost of sales assesses your small business’s entire inventory, whereas COGS looks solely at your production costs. Whenever you pay for shipping out to your customer, this is not included in COGS but is a monthly expense. The cost of sales encompasses far more than COGS does. “Freight in” is defined in the IRS Tax Guide for Small Business as “Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of the cost of goods sold.” Click HERE to get FREE Freight and Shipping Ebook Guide Using the cost of goods sold formula: Cost of goods sold Beginning Inventory + Purchases During the Period Ending Inventory COGS 15000 + 7000 4000 The cost of goods sold for that company’s quarter is 18,000. ![]() If you are shipping a product from your manufacturer to yourself, your prep center, or Amazon, this is considered “freight in” and can be included in your calculation for Inventory and COGS. If your business purchases products to resell and maintain inventory, the COGS accounts for the costs of items purchased for resale. When you are calculating the cost of your products, how do you handle the freight? Is it included in your cost of goods sold calculation? Or do you pay it from an expense account designated for freight or shipping? Luckily, the IRS rules are pretty clear in this area.
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