Question

Which of the following statements is true of costs of goods sold?

a. It is reported as inventory on the balance sheet.
b. It equals the sum of direct and indirect materials used in the manufacturing of goods.
c. It is the selling expense of the units sold during the period.
d. It is an expense and is recognized on the income statement.

Answer 1

Cost of goods sold (COGS) is recognized as an expense on the income statement and it is the direct costs related to the production of goods sold by a company.

Step-by-step explanation:

The correct statement about the cost of goods sold (COGS) is that it is an expense and is recognized on the income statement. COGS is essentially the direct costs attributable to the production of the goods sold by a company. This includes the cost of the materials and labor directly used to create the product, as well as overhead costs directly tied to the production process. It does not include indirect expenses, such as distribution costs and sales force costs. COGS is deducted from a company's revenues to determine its gross profit.