![]() ![]() The cost of inventory plays a major part in the calculation of COGS while there is no such thing when we calculate the cost of revenue or services. The term cost of goods sold is mostly associated with the manufacturing industry while services or skill-based industry cost of revenue is used to express their cost of services.Īnother difference between the two is the calculation and maintenance of inventory. The double entry for the cost of services are as follow: Description Amount Cost of services Dr Cash/Bank Cr Difference between COGS and Cost of Services: Gross profit = USD600,000 Cost of services journal entry:Ĭost of services are considered as the expenses element of the financial statements and the double tries are the same as expenses or cost of goods sold.įollowing the example above, the salaries of the professional staff are considered as the costs of services since the professional staff is involved directly with the services. So that salary for the professional staff here considers as the costs services during the period. The firm incurred direct labor costs ( Salaries for the professional staff) during the period are USD700,000. Related article Accounting for Direct Overhead - Definition, Example, And Accounting Treatment Services business includes accounting firms, law firms, consulting firms, medical treatment, transportation, hospitality, etc.įor example, an accounting firm generates revenues by providing accounting services to its clients such as bookkeeping and auditing services.Īnd the revenue that the firm generates during the year is Service businesses provide different types of intangible products performed by individuals or a team of experts. The costs are records are they are incurred complying with accrual basis as well as matching principle. The cost of services is reported in the entity income statement similar to the cost of sales for the manufacturing or trading company. Other costs that do not directly contribute to rendering service should not include in the cost of services when presented in the income statement. However, materials are usually not significant compared to direct labor costs but we still need to include all of those materials that are used to the cost of services. The typical expenses included in the category of direct costs are the cost of material, cost of labor or cost of salaries in a service industry, and all other costs which can be linked directly to the manufacturing of products or rendering of services. It includes all the direct costs involved in running or performing services. Cost of Goods Sold, cost of sales, cost of revenue, or cost of services are referred to all the direct costs associated with services rendered to the customer for the business provides companies. ![]()
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