Cost of Goods Sold (COGS) is also related to Gross Profit and Gross Margin. Cost of Goods Sold is the second entry of the Income Statement. It represents an expense to the company. The expense is in the form of raw materials, packaging, and such.
Example: Suppose a company’s has the following Income Statement entries:
Sales = $100,000 (a.k.a. Top Line, Revenue, or Credit Sales)
COGS = $25,000
The Gross Profit = (Top Line – COGS) = ($100,000 – $25,000) = $75,000
The Gross Margin = Ratio = (Top Line – COGS) ÷ Top Line = ($100,000 – $25,000)/$100,000 = 0.75 or 75%