Expense Category

What expense category are cost of goods sold?

There are a few different ways to categorize the cost of goods sold (COGS), and it ultimately depends on how your business keeps track of expenses. For some businesses, COGS may be lumped into a single category like "production costs" or "inventory costs". Other businesses may have more detailed categories like "raw materials", "labor", and "overhead".

If your business uses accounting software, there is usually a default COGS account that is set up. This account is typically used to track the direct costs associated with producing your goods or services. These costs can include:

  • Raw materials
  • Direct labor
  • Manufacturing overhead

COGS does not include indirect expenses like marketing, administrative, or research and development costs. These costs are considered part of the operating expenses of your business.

When you're ready to file your taxes, you'll report your COGS on Schedule C of your Form 1040. This will give you your gross profit, which is your total revenue minus your COGS. Your gross profit is an important number because it shows how much money you have left to cover your operating expenses and still make a profit.

The information provided in this article does not constitute legal or financial advice and is for general informational purposes only. Please check with an attorney or financial advisor to obtain advice with respect to the content of this article.
Cost of goods sold
“Accurate classification of expenses is vital for businesses as it forms the backbone of financial reporting, tax compliance, and strategic decision-making. It enables businesses to track and analyze their spending patterns, identify cost-saving opportunities, and assess the profitability of various operations or projects. Having a single source to turn to for accounting classification suggestions, such as the Ramp Expense Classifier tool, is immensely helpful as it provides consistency, reduces ambiguity, and streamlines the expense classification process.”
Audrey Carroll
Senior Manager, Accounting, Ramp
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“As we scale we need tools that are built to scale with us - we need to see expenses real time, we need to see duplicate spend. These types of insights are important to the health of our business.”

Steve Padis
SVP Finance & Strategy, Barry's

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