Financial Glossary
Cost of Sales (COS) vs. Cost of Goods (COGS)
Cost of sales (COS) and cost of goods sold (COGS) both represent the direct costs a business incurs to produce or deliver what it sells, and the terms are often used interchangeably. COGS typically describes the direct cost of physical products sold, such as materials and production labor, while cost of sales is the broader term frequently used by service and hospitality businesses to capture the direct cost of delivering their offering. Both sit at the top of the income statement and are subtracted from revenue to arrive at gross profit.
Problem & Application
A campground or STR operator usually has cost of sales, such as cleaning, supplies, and direct labor tied to occupied units, rather than a manufactured product's COGS, and classifying these costs correctly drives an accurate gross margin. Mixing direct costs in with overhead distorts profitability and makes it hard to know which sites, units, or services actually make money. Consistent treatment across periods is what makes margin trends meaningful.
In Short
Whether you call it cost of sales or cost of goods sold, the goal is the same: isolate the direct cost of what you sell so gross profit is accurate. The right label depends on your industry, but consistency is what matters.