Q5-4RQ - Horngren'S Financial And Managerial Accounting

Question

What is the Cost of Goods Sold (COGS), and where is it reported?

Step-by-Step Solution

Answer

The cost of goods sold is the cost of goods that has been sold to the customers by a business, and the same is reported in the income statement. 

Meaning of Income Statement

An income statement summarizes revenues and expenses of a business concern that are generated and spent during one accounting period. It is prepared to ascertain the net income earned or net loss incurred by a business. 

Meaning and reporting of the cost of goods sold

The cost of goods sold denotes the cost incurred by a business entity to sell its goods to the customers. It is obtained by adding the opening inventory into purchases and subtracting the closing inventory. 

The cost of goods sold is considered an expense and reported in the income statement. It is deducted from the net sales revenues of the business concern.