Cost of Goods Sold
Definition
The direct cost of delivering the company's product or service to a customer, including only costs directly attributable to the production or delivery of the product. Cost of goods sold does not include sales and marketing costs, general and administrative costs, or research and development costs. The composition of cost of goods sold varies by company type; the structural definition of what belongs in the category does not vary.
Common Misapplication
The most common misapplication is classifying operating expenses as cost of goods sold to improve the reported gross margin. Sales team salaries, marketing spend, and office costs are not cost of goods sold regardless of how they are labelled. A company that misclassifies operating expenses as cost of goods sold produces a gross margin figure that overstates the direct profitability of the product.
FFI Standard Reference
This term is defined and applied in Book 1, Section 1.1: The Three-Statement Standard.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Cost of Goods Sold. https://ffistandard.org/glossary/cost-of-goods-sold/. 2026.