How often have you heard a business owner say “Why would anyone include depreciation, or rent, or insurance and many similar costs, in their Cost of Goods Sold? It’s best to keep it simple!” They want to apply the KISS Principle, but it can be simply stupid.
The KISS Principle can be “Simply Stupid”
Well for many reasons, such expenses should be included in COGS. Including:
- These costs are incurred only because someone is manufacturing a product or selling a service, which I believe defines what COGS or COS are
- In Texas, the Gross Margin Tax is based on gross margin, which for a manufacturer can include the costs mentioned above
So in many cases, the KISS principle – is “Simply Stupid” because it results in overpayment of the GMT, and obfuscates the real cost of a product or Service. And incidentally, it is GAAP. Just look at public company annual reports… Almost assuredly, your bank LOC requires financials prepared in accordance with GAAP.
Keep it Real.
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