Understanding Accounting Cogs Abbreviation: A Guide for Business Owners

As a business owner, it is crucial to understand various accounting terminologies to make informed decisions about your company's financial performance. One such term that often confuses many entrepreneurs is COGS (Cost of Goods Sold) and its abbreviation. In this article, we will delve into the meaning and significance of COGS, as well as provide insights on how it differs from SG&A (Selling, General, and Administrative Expenses).

What is COGS?

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COGS refers to the direct costs associated with producing goods or providing a service. It includes all expenses that are directly related to manufacturing, such as raw materials, direct labor, transportation costs, and any other direct expenses. In a manufacturing business, COGS measures the direct costs of producing items sold during a selected period.

For instance, if you own a locksmith company, your COGS would include business expenses involved in providing the service, such as direct labor, tools, parts used, and transportation costs.

Key differences between COGS and SG&A

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COGS is often confused with SG&A, which includes all non-production costs. While both are essential for increasing company profitability and calculating its breakeven point, they serve different purposes.

SG&A, also known as Selling, General, and Administrative Expenses, refers to operating expenses that are not directly related to manufacturing the goods or delivering a service. These expenses include salaries, rent, marketing, and other non-production costs.

Tracking COGS accurately is important for accounting and modeling, especially for SaaS businesses that provide software instead of physical goods. In such cases, calculating COGS is quite different from traditional manufacturing businesses.

Calculating COGS

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The cost of goods sold calculator can make the process much easier. Our SaaS business forecasting software includes a handy COGS calculator to help you track your costs accurately. Here's how to calculate COGS:

1. Identify all direct costs involved in producing a product or delivering a service.

2. Add up these direct costs, including raw materials, direct labor, transportation costs, and any other direct expenses.

3. Record the total cost as COGS on your income statement.

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COGS is an essential metric for business owners to track their company's profitability and breakeven point. Understanding the difference between COGS and SG&A can help you make informed decisions about your business operations. By using a COGS calculator, you can simplify your calculations and improve your financial planning and analysis.

At Profit Frog, we offer leading financial planning and analysis (FP&A) software specifically designed to aid small businesses like yours. Our software simplifies COGS calculations and makes them actionable so you can improve profitability. Contact us today to learn more about our SaaS business forecasting software.

Accounting cogs abbreviation