This category represents the running costs of a business that directly relate to the sales they are making. For example, it could be the costs of raw material, salaries for factory workers making the goods and even the postage of the finished goods.
What's included
Cost of raw materials.
Purchase price of goods to be resold.
Distribution costs such as freight or shipping costs.
Manufacturing businesses can include the direct cost of labour in the cost of goods sold.
What's not included
Postage of a letter.
Other expenses that are not in direct relation to the sale of your products.
Don’t include items received in the last accounting period that you paid for in this accounting period.