When a retailer or manufacturer sells goods/products, the cost of the items sold:
- Reduces the company’s assets (inventory), and
- Is recognized as an expense in determining the company’s net income
Since the cost of goods sold is typically a retailer’s or manufacturer’s largest expense, it is reported on a separate line of the income statement.
The company will report a few additional lines on the income statement including:
- Selling, general and administrative expense
- Interest expense
