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I don’t understand “Cost of Goods Sold” as an Income Account.

I don’t understand “Cost of Goods Sold” as an Income Account.

KIS BOOKS treats “Cost of Goods Sold” as a Negative Income account. KIS BOOKS does keep this simple.

Gross Profit is usually defined as Sales less Cost of Goods Sold.

Note: Net Profit is your bottom line after deducting all other expenses.

So how does this tie in with the Asset account “Stock on Hand”?

Very Simply put……if you had a market stall selling Oranges; – in the morning you may have gone to the market and put your stock of 10 oranges on your table. During the day you might have purchased 10 more Oranges giving a total of 20.

If at the end of the day, you did a stock take, and counted 5 Oranges left, then in the normal course of business this would mean you sold 15 Oranges. “Cost of Goods Sold” would be 15. “Stock on Hand” would be 5.

Commonly you could use a Journal Entry to correct values between the “Cost of Goods” sold account and “Stock on Hand”.

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