What is the Difference Between Cost of Sales and Cost of Goods Sold?

The difference between Cost of Sales and Cost of Goods Sold (COGS) lies in the costs they include. Both concepts measure the expenses a business incurs to produce or acquire the goods or services it sells, but they differ in the specific costs they cover.

Cost of Sales:

• Analyzes the direct and indirect costs related to a company's sale of its goods and services.
• Includes the cost of finished goods in the beginning inventory, the cost of goods created during the accounting period, and the cost of goods in the ending inventory.
• Reflects the total amount of products or services that are not just created but successfully sold.
• Typically used by retailers and service providers.

Cost of Goods Sold (COGS):

• Analyzes the direct costs associated with the production of a company's goods.
• Includes direct labor, overhead expenses such as office rent, raw materials, supplies and parts used to create the product or service, and the wholesale price of any goods or services resold.
• Reflects the cost of manufacturing the products that are sold.
• Commonly used by manufacturers.

In summary:

• Cost of Sales includes both direct and indirect costs related to the sale of goods and services.
• Cost of Goods Sold focuses on the direct costs associated with the production of goods.
• Both concepts are essential for understanding the operating expenses behind production and the costs involved in selling products or services.

Comparative Table: Cost of Sales vs Cost of Goods Sold

The difference between Cost of Sales and Cost of Goods Sold (COGS) can be summarized in the following table:

In summary, both Cost of Sales and COGS measure the expenses a business incurs to produce goods or services. However, Cost of Sales includes indirect costs as well, while COGS focuses on the direct costs of production. Retailers typically use Cost of Sales, while manufacturers use COGS.