Cost of Goods Sold

Cost of goods sold accounts are different from expense accounts in that while expenses are sustained operating a business, cost of goods are directly incurred creating a product that the company sells.

For example, if you have a printing business, and you sell calendars, your costs of goods are the expenses directly incurred creating the calendars that you plan to sell such as the paper and ink that you use to print the calendars and the graphic designer that you hire to create the pictures in the calendar.

However any advertising costs sustained trying to sell the calendars, paper and ink used to print out invoices, shipping the calendars to the store where you sell them or any other costs incurred operating your business but not directly creating those calendars or other print items you intend to sell, come out of your expense account, not your cost of goods account.

Your costs of goods are subtracted from your revenue and calculated into your gross income at the top of your profit and loss statement.

How you calculate your cost of goods depends on what type of business you are operating and what method you use to keep track of your inventory.

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