Are cost of goods sold operating expenses?

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Are the cost of goods sold the same thing as the operating expenses? Can a company choose what to include in the operating expenses and what to include in the cost of goods sold?

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score 0 · Answer 1 · 2012-12-02T19:29:00+00:00

No, cost of goods sold is just the cost of goods sold! Operating expenses are the remaining expenses that are incurred as part of the day to day operations which are not directly related to the costs to manufacture a product.

For example, if you pay 1,000 to buy plastic (material) and 1,000 to buy colours and you sell plastic chairs for 5,000 while you have paid 100 for rent and 100 for electricity, your income statement should look like:

Revenue 5,000
Cost of goods Sold (2000)
Gross Profit (3000)
Operating Expenses (200)
Operating Profit (2800)

In order to find the cost of goods sold, you have :

Opening Inventory
Add Purchases for the year
Less Closing Inventory

Equals Cost of Goods Sold.