Difference Between Cost of Goods Sold And Cost of Services

 

Cost of Goods Sold or Cost of Sales is the direct cost of production and it is related to manufacturing / producing and selling of finished goods to ultimate customers.

Cost of goods sold for trading or merchandise companies is calculated by applying the below formula as shown below:

Cost of Sales = Opening Inventory + Purchases - Closing Inventory

For Manufacturing companies we use the following formula:

Cost of Sales = Cost of Goods Manufactured + Opening Finished Inventory + Purchases - Closing Finished Inventory

Cost of services or cost of revenue is only calculated for services companies. It does not deal with cost of sales as it is concerned only with merchandising or goods produced and traded which is not involved in a pure service business. Cost of revenue includes all the costs incurred in rendering the services to clients. Major examples of services companies include all professional firms such as Accounting Firms, Qualified Audit Firms, Doctors, Lawyers, etc. Cost of services is calculated by adding all the costs required to render the services to clients.