Cost of Goods Sold

On Sat, 17 Dec 2005 17:05:32 +0000 (UTC), in alt.accounting snipped-for-privacy@steel.ucs.indiana.edu (Gregory L. Hansen) wrote in :

The account names vary, but they are considered sales supplies and they are included in direct selling costs.

Those items are not included because they have nothing to do with the purchase or preparation of the merchandise offered for sale.

Bags and cash register tape could be considered store supplies or a selling expense.

Following will answer your question and give you the reasons why this is done this way.

1) Companies are in business to make money. The money they make comes from the profit of the goods they are selling. In a trading company, this profit (Gross Profit) is the difference between the prices billed to the customers (Sales or Revenue) and the prices they are paying to their vendors, and all other costs that are incurred in the trading transaction such as packaging, freight, cargo insurance etc. (cost of goods sold) In a company that is manufacturing the products they are selling the profit (Gross Profit) is the difference between the prices billed to the customer (Sales or Revenue) and all the cost that they incur to produce these products such as payroll, social securities, raw material, packaging. (Cost of goods sold) The profits that result from the trading of the goods (Gross Profits) are reduced by the operating costs. These are all other expenses that the company incurs for other then costs that are directly related to individual sales transactions. This includes administration expenses, back office expenses, accounting expenses, advertising etc. This clear separation between Cost of Sales and Operating Expenses allows the company to identify the profits they achieved from trading (Gross Profit) and the expenses they incurr to operate the company.

Following will answer your question and give you the reasons why this is done this way.

1) Companies are in business to make money. The money they make comes from the profit of the goods they are selling. In a trading company, this profit (Gross Profit) is the difference between the prices billed to the customers (Sales or Revenue) and the prices they are paying to their vendors, and all other costs that are incurred in the trading transaction such as packaging, freight, cargo insurance etc. (cost of goods sold) In a company that is manufacturing the products they are selling the profit (Gross Profit) is the difference between the prices billed to the customer (Sales or Revenue) and all the cost that they incur to produce these products such as payroll, social securities, raw material, packaging. (Cost of goods sold) The profits that result from the trading of the goods (Gross Profits) are reduced by the operating costs. These are all other expenses that the company incurs for other then costs that are directly related to individual sales transactions. This includes administration expenses, back office expenses, accounting expenses, advertising etc. This clear separation between Cost of Sales and Operating Expenses allows the company to identify the profits they achieved from trading (Gross Profit) and the expenses they incurr to operate the company.