<P> Cost of goods purchased for resale includes purchase price as well as all other costs of acquisitions, excluding any discounts . </P> <P> Additional costs may include freight paid to acquire the goods, customs duties, sales or use taxes not recoverable paid on materials used, and fees paid for acquisition . For financial reporting purposes such period costs as purchasing department, warehouse, and other operating expenses are usually not treated as part of inventory or cost of goods sold . For U.S. income tax purposes, some of these period costs must be capitalized as part of inventory . Costs of selling, packing, and shipping goods to customers are treated as operating expenses related to the sale . Both International and U.S. accounting standards require that certain abnormal costs, such as those associated with idle capacity, must be treated as expenses rather than part of inventory . </P> <P> Discounts that must be deducted from the costs of purchased inventory are the following: </P> <Ul> <Li> Trade discounts (reduction in the price of goods that a manufacturer or wholesaler provides to a retailer) - includes a discount that is always allowed, regardless of the time of payment . </Li> <Li> Manufacturer's rebates--is based on the dealer's purchases during the year . </Li> <Li> Cash discounts (a reduction in the invoice price that the seller provides if the dealer pays immediately or within a specified time)--it may reduce COGS, or it may be treated separately as gross income . </Li> </Ul>

Cost of sale vs cost of goods sold