Cost of Goods (Services) Sold

[prozak]

Hi All,

apologies for this basic accounting question (it has been about 20 years since my accounting components of my degree!). I think I know the answers, but I would rather get some help

I am just wanting to clarify some cost of goods / services sold concepts.

Obviously COGS is the easy bit. In basic terms. If I buy a widget and sell the widget the cogs is the price i paid for widget and any shipping etc for the widget. Thats fine for when I sell widgets. and i have all colours of widgets

Now, as all of you do, I sell a lot of services.

To keep this easy i'll use an analogy that i hope everyone (including me!) understands.

And as we go i'll propose what I think the cost of sales items are.

Lets say put on training courses for customers and sell it to them (sales revenue)

1. Sometimes I use my general poperty that i use for something else as well (overheads / expenses)
2. sometimes in a training only property which requires maintenance, fixing, cleaning (direct expenses)
3. and sometimes i rent a room from someone specific for the course (cost of sales)
4. I provide food (cos)
5. I hire a trainer to provide the course (cos)
6. I have to pay a fee to someone to be allowed to put on a course for each course I run (cos)
7. I buy equipment that I use only for training, but can use again (direct expense)
8. I pay a company a fee to be allowed to provide training (direct expense)
9. I have to pay a fee to remain a licensed practitioner (direct expense)
10. advertising for the course (direct expenses)


I've run out of ideas with te analogy

So, adding up the Cos items we get the equivalent of cogs.
then i guess a broader measure to include direct expenses could be cost of revenue?

So how did i do?

The reason I ask is that I am changing accounting programs and need to track a wider range of things as I am making a serious move into the plan b.

thanks.

[Jessica@WhiteFieldTax]

There's probably no hard and fast rule about classification of these items; it's context sensitive.

I.e. If you are concerned with unit profitability you would want to take an element of fixed costs to cogs. However the fixed costs are there regardless, so in another context it's probably better to look at variable cost and contribution. Then again in the long run all costs are variable.

Pragmatically, get the chart of accounts for plan B set up in a way that serves your management requirements, not statutory financial reporting. It's easy enough to shunt items around at the year end for compliance (subject to the cardinal sin of mixing revenue and cost in the same nominal code).

YMMV