![]() My signature course, Bookkeeping Bootcamp, will help you better understand your finances so you can make informed decisions that are best for you and your biz. I know that jumping into understanding your business efficiency and profitability can be overwhelming, but now is the perfect time to get to the bottom of it and set up your business for success. Kristine, why should we care? COGS tells us how efficient we are at creating our product or service, while operating expenses tell us how efficient we are at running our overall business.īoth metrics provide incredible insight into your business and can make or break your profitability, so it’s super important that we know the difference as business owners. The easiest way to differentiate COGS vs Operating Costs is to ask yourself: Would I have this expense even if I don’t sell anything? If the answer is yes, then you’re dealing with an operating expense. Sounds simple on paper, but sometimes it can get confusing IRL. ![]() The difference between Revenue and COGS is called Gross Profit. You’re required to pay your premiums regardless of how many sales you have.Īnother example is your office or storefront rent because you have to pay the same amount whether you have one customer that month or 100. COGS has a much greater impact on the value of a business than standard operating expenses. An example of this is business insurance. OPERATING EXPENSESĪKA: overhead costs, is the money spent on running your business. You’ll have to pay for shipping to send your product to the customer to complete the sale. For example, shipping is a cost of goods or services. These are expenses directly related to making your product or providing your service. But, not all expenses are created equal so let me break down the two major types of expenses for you.ĪKA: cost of goods or services, also known as direct costs. This is the money you need to spend in order to generate income and operate your business. How’s that for a new tag line?īut fo real, let’s talk about understanding your expenses and making sure that you’re in the green when you are running the numbers at the end of the day.įirst things first (I’m a realest) - what’s an ‘expense’ anyway? Expenses are your costs of doing business. Easy for me to say, sitting over here in my accountant throne but in this kingdom, we’re all about profit, people. Learn more about how Noon can help you take control of you finances today.This may or may not be common sense but if your business isn’t profitable, it’s not going to end well. We can handle all of your bookkeeping in one place so that you can focus on running and growing your unique business knowing that we've got your finances handles. Noon Bookkeeping is an outsourced bookkeeping and accounting solution for business owners consisting of a team of accountants and certified, expert bookkeepers ready to help you organize the finances of your business. If you are ever confused about the difference between your cost of goods sold and your operating expenses, just remember that COGS are costs associated with producing your goods or services while operating expenses include all other indirect costs of running your business such as rent, utilities, and insurance. 3) Is COGS considered an operating expense?ĬOGS and operating expenses appear as two different line items on the income statement. Some examples of COGS expenses are raw materials, items purchased for resale, purchase returns and allowances, cash discounts, parts used in production, along with many others. 2) What expenses should be included in COGS? COGS includes all costs associated with producing your product or service, while operating expenses include all other necessary costs of running your business. No, COGS and operating expenses are not the same. 1) Are COGS and operating expenses the same? The main difference between COGS (Cost of Goods Sold) and operating expenses is this: COGS are business expenses that are directly tied to the production of your goods or services while operating expenses are not directly tied to revenue production. The cost of your insurance is an example of an operating expense. ![]() You own a t-shirt manufacturing company and you must pay for general liability insurance. You own a t-shirt manufacturing company and you purchase more cotton to be used in the production of more t-shirts to sell.
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