We mentioned tax implications, but there are many more reasons why you need to know your COGS: It may be tempting to ignore or overlook it - this is not only bad practice but bad for your margins. We’ll get to how to calculate cost of goods sold, but first, let’s go over the importance of COGS.Ĭost of goods sold is one of the vital cogs in your business. Additionally, the accurate calculation and reporting of COGS is necessary under generally accepted accounting principles (GAAP). Other metrics, like leftover stock, can also be taxable, so you need to be on top of everything. This means that COGS is serious business.Ĭalculating cost of goods sold is vital to know your taxable income. The IRS makes sure they are reporting their income accurately. In the US, scaling manufacturers are routinely subject to tax audits.
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