Can someone please explain Cost of Sales (CoS) to me?
Actually - I thought I knew, its a cost directly attributed to the sale.
So, why is General Purchases, GP, come under cost of sales? I think I have been categorising things wrong.
I thought GP was where you just put… stuff, misc purchases - the ornament that serves no function other than looking pretty, the covid masks, the screwdrivers I need for small repairs. Odd bits of software.
I’ve created other nominal codes to break down my CoS purchases, I wouldn’t have thought GP was a good idea if you wanted to track properly.
You’re pretty much right in your first line - “cost of sales” refers to the costs that are directly attributable to specific sales, as opposed to the “overheads” that are the general costs of doing business.
The simplest example is my situation running a shop - I buy stock in bulk from suppliers and I re-sell the same stock as single items to my customers. So I use “general purchases” when I buy stock and “general sales” when I sell it (making an adjustment at the end of the year for the stock I still hold, so my cost of sales is only the cost of those items that actually sold during that year). Other things like the electric bills, property maintenance costs, till rolls, bank charges, etc. are all overheads as they relate to the business as a whole rather than being tied to specific sales.