FASB ASC 705 - Cost of Sales and Services


The Financial Accounting Standards Board (FASB) released the 700 section of the Accounting Standards Codification for the purpose of discussing the braod topic of Expenses. Accounting Standards Codification 705 (ASC 705) was released to address the more specific topic of Cost of Sales and Services. This is a very important line item on the income statement and has very specific rules as to what can be included in it. The reasoning behind this is that many financial analysts on Wall Street use this to evaluate profitability and the efficiency of a company’s operations.

Cost of sales has a specific formula which must be calculated for the entity, and this is highly dependent upon the industry. For example, how to calculate cost of goods sold for the retailer would be different than cogs for a manufacturer.

See some more articles below that further expound on the topic, on various levels of difficulty:
+Why COGS is an expense
+Transportation costs in COGS
+Inflation and COGS

Check out more high level explanations of the FASB ASC in our Guide to the Accounting Standards Codification!

For more in depth information on this and other FASB ASC topics, check out the following books.

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