Cost of Sales Accounting
The profit and loss statement of an organization can be created according to two different procedures:
· Period accounting
· Cost of sales accounting
Cost of sales accounting compares the sales revenue for an accounting period with the manufacturing costs of the activity. The expenses are allocated to the commercial functional areas (manufacturing, sales and distribution, administration, and so on). Expenses and revenues that cannot be assigned to the functional areas are reported in further profit and loss items, sorted according to expense and revenue type.
With this type of grouping, cost of sales accounting identifies where costs originate in a company. It therefore portrays the commercial purpose of the expense.
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