COGS Explained

Cost of Goods Sold (COGS), also called Cost of Sales, refers to the direct costs of producing the goods sold by a Restaurant over a period of time. This is different from the total purchases over a period of time in a few key ways:

  • This amount also includes products on hand that were used even if they weren’t purchased in the period.

  • This does not include products purchased during the period which were not used but remain in inventory.

  • This does not include general operating expenses of a restaurant not directly associated with specific sales.

Cost of Goods Sold is a specific type account in a restaurant's general ledger, and it’s value can be calculated as follows:

Cost of Goods Sold = Starting Inventory + Purchases - Ending Inventory

This might be more easily expressed as follows:

Cost of Goods Sold = Purchases + (Starting Inventory - Ending Inventory)

Or even more simply:

COGS = Purchases + Inventory Adjustments.

 

What is the difference between COGS and Expenses?
Cost of Goods Sold is the direct cost required to produce any sales in a particular period. Expenses (also called Operation Expenses or Indirect Expenses) are the general cost of operating a business that are not tied to a particular sale.

For example, in order to sell a cheeseburger, a restaurant would need to buy the physical ingredients: buns, ground beef, cheese, etc…these would be considered Cost of Goods Sold. It is also true that the restaurant needs to pay rent, utilities, labor, and repair and maintenance costs, but none of these are directly associated with the sale of a cheeseburger, but rather with the cost of operating the business generally. These are Expenses.

MarginEdge includes the Category Types Food, Beer, Wine, Liquor, NA Bev and Retail under COGS. 

Category Type Other falls under Expenses.

 

Read more about how the various reports in MarginEdge break down your COGS here.

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