Cost of Goods Sold is: a) an expense recorded when inventory is sold. b) an expense associated...
Question:
Cost of Goods Sold is:
a) an expense recorded when inventory is sold.
b) an expense associated with both buying and selling inventory.
c) a contra-revenue account that reduces net sales on the income statement.
d) an operating expense on the income statement.
Sales:
Sales revenue refers to revenues generated by the sale of goods to customers. Sales companies are different from service companies in terms of how they generate revenue and what sort of accounts they maintain.
Answer and Explanation: 1
The cost of goods sold is a) an expense recorded when inventory is sold.
The cost of goods sold subtracts the value of inventory sold from sales revenue and is reported below net sales on a multi-step income statement. In manufacturing, the cost of goods sold refers to the difference between the beginning and ending inventory less the amount transferred in from work-in-process.
Analysis of Alternatives
- b) It is only expended when selling inventory.
- c) While COGS reduces net sales, it is not a contra-revenue account like discounts or returns.
- d) It is listed above operating expenses on the income statement.
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Cost of Goods Sold on an Income Statement: Definition & Formula
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Chapter 2 / Lesson 10
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Learn the definition of the cost of goods sold and the formula used to calculate it. Also, learn how the cost of goods sold is calculated using examples.
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