7 Experts Weigh In On the Future of Accounting
Every industry is impacted by the rise of technology and automation, and for many, that can be an...
Calculating COGS is an important step in determining a business’s profitability. It is a central number on a P&L statement of inventory-based companies; without it, the gross profit margin cannot be determined. For example, the cost of goods for retail businesses is the cost of inventory the business sells. It is typically accounted for on a sale-by-sale basis and uses what’s known as a perpetual inventory system in the point of sale software. For manufacturing firms, COGS includes all direct costs that go into a product’s production. In addition to labor and materials, some manufacturers include certain overhead costs when determining COGS, though this is not typically recommended.
COGS are the first expenses listed on the profit and loss statement and reducing these expenses can help a company increase profits without having to increase sales. It is an important figure because it indicates the expenses involved every time a sale is made, a critical factor in setting prices. COGS also has tax implications; it is considered an expense which means the larger it is, the lower a company’s taxable income.
Botkeeper provides you with high-quality bookkeeping using human-assisted AI, plus, powerful software to watch your financials. It’s everything a business owner needs to do the bookkeeping—without actually having to DO the bookkeeping.