Expense Category
Equipment

What expense category does the cost of inventory come under?

There are a few different ways to categorize the cost of inventory, but the most common and accepted method is to include it under the cost of goods sold (COGS) expense category. Other ways to categorize the cost of inventory include including it as part of the operating expenses category or creating a separate inventory category.

Cost of Goods Sold (COGS)

The cost of inventory is most commonly included as part of the COGS category. COGS includes all the direct costs associated with producing the goods that your company sells. This would include the cost of the raw materials, any direct labor costs, and the overhead costs associated with production. For companies that carry inventory, the cost of the inventory that was sold during the period would also be included in the COGS calculation.

Operating Expenses

Another way to categorize the cost of inventory is to include it as part of the operating expenses category. Operating expenses are all the expenses that are incurred in order to keep the business running. This would include things like rent, utilities, insurance, and office supplies. For companies that carry inventory, the cost of the inventory would be included in this calculation.

Inventory

A third way to categorize the cost of inventory is to create a separate inventory category. This category would include all the costs associated with the inventory, including the cost of the raw materials, the direct labor costs, and the overhead costs associated with production. For companies that carry inventory, the cost of the inventory would be included in this calculation.

Which expense category is correct will depend on the specific business and how it chooses to categorize its expenses. However, the most common and accepted method is to include the cost of inventory under the COGS category.

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 inventory
“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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