Commercial Cost
Code: 5110Account Information
| Financial Statement | Income Statement |
| Normal Balance | Debit |
Definition
The direct costs associated with the purchase or production of goods that have been sold during the financial period. This cost includes goods purchases, freight-in, customs duties, and is reduced by purchase returns and purchase discounts. This cost is matched with commercial revenue to determine the gross profit (or loss) from commercial activity.
Sub-accounts
📐 IFRS vs US GAAP Accounting Treatment
❓ Frequently Asked Questions
A: Cost of Goods Sold (COGS) is the direct costs associated with the goods that have been sold during the period, including: purchase cost of goods, freight-in, customs duties, and is reduced by purchase returns and purchase discounts. It is matched with revenue to determine gross profit.
A: Gross Profit = Net Revenue - Cost of Goods Sold. Net Revenue = Gross Sales - Discounts Allowed - Sales Returns. Gross Profit represents profit before deducting operating, administrative, financing expenses, and taxes.
A: Purchases is the total value of goods bought during the period, while Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory. The difference represents the change in inventory. If inventory increases, COGS is less than purchases, and vice versa.
A: In a trading company, Cost of Goods Sold = Beginning Inventory + Net Purchases - Ending Inventory. Net Purchases = Purchases + Freight-In + Customs Duties - Purchase Returns - Purchase Discounts.
A: Beginning inventory + Net purchases (purchases + freight-in - returns - discounts) - Ending inventory. Does not include administrative or selling expenses.
A: In periods of rising prices, FIFO gives lower cost of sales (higher profit) than weighted average. In periods of falling prices, the opposite is true.