Loading Profile...
Cost of sales
Can someone explain to me what the difference is between cost of sales and operating expenses? Does FAC pick these up from the various expenditure codes automatically?
I’m unsure
1
person has this question
I have this question, too!
Tell me when someone answers.
The more people who ask this question, the more it gets noticed.
The more people who ask this question, the more it gets noticed.
-
Inappropriate?At its simplest cost of sales is literally the cost of the goods sold eg in a general stores it is the cost of all the cans of beans, etc which have been sold. It also tends to be (rather confusingly & mistakenly) those costs which relate directly to sales (direct costs) and which vary in line with sales. So in a manufacturing firm it would include the cost of factory labour but not office workers.
Operating expenses are all the other costs which are not classified as cost of sales.
The costs are split to:
1. Arrive at a gross profit % (gross profit = sales less cost of sales) - to allow owners to "manage" the profit before expenses; and
2. Given that cost of sales increase in line with sales owners can see the effect on net profit (sales less cost of sales less expenses) of increases/decreases in sales -
Inappropriate?From a service company point of view, the retail/manufacturing definition above doesn't really apply.
However you could argue that resold webhosting etc very much counts as Cost of Sales.
Equally, expenses which are incurred in direct relation to client work (travel, accomodation etc) are arguably Cost of Sales: they aren't really Admin Overheads as such.
One of the things on our roadmap is to reclassify such re-invoiced expenses into new Cost of Sales categories. So you won't need to think about it too much, FreeAgent will just 'do the right thing'.
EMPLOYEE
