Why the Cost of Goods Sold is an Expense
We often think of expenses as salaries, advertising, rent, commissions, interest, and so on. However, the cost of goods sold is also an expense that must be matched with the related sales. Hence, a company’s operating income is its operating revenues minus the cost of goods sold and its sales, general and administrative expenses.
The FASB’s Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements, paragraph 81, states that “…expenses themselves are in many forms and are called by various names—for example, cost of goods sold, cost of services provided, depreciation, interest, salaries and wages….” You can read the concepts statements at www.FASB.org/st.
