Final answer:
The cost of goods sold is an expense in the income statement of a business and represents the direct costs incurred in producing the goods that were sold. It is subtracted from the revenue/sales to calculate the gross profit.
Step-by-step explanation:
The cost of goods sold is classified as an expense in the income statement of a business. It represents the direct costs incurred in producing the goods that were sold during a specific period of time. The cost of goods sold includes the cost of materials, labor, and overhead directly associated with production.
In an income statement, the cost of goods sold is typically subtracted from the revenue/sales to calculate the gross profit. It is an important figure for businesses as it helps determine their profitability and efficiency in managing their production costs.
For example, if a company sells a product for $100 and the cost of goods sold for that product is $70, the gross profit would be $30.