Cost of Revenue (Cost of Sales)

Category

Income Statement

Units

Currency

US-GAAP elements

CostOfRevenueCostOfGoodsAndServicesSold

Reference

Regulation S-X Rule 5-03.2 (Costs and expenses applicable to sales and revenues)

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Cost of revenue is the total direct cost of producing the goods a company sold and delivering the services it provided during a period. It includes costs such as materials, direct labor, manufacturing overhead, and the costs of delivering services, and it excludes general costs of running the business such as selling, administrative, and research expenses.

Revenue minus cost of revenue equals gross profit, the first measure of how profitable a company's core offering is before overhead.

Regulation S-X Rule 5-03.2 requires companies to show the components of this caption separately: the cost of tangible goods sold, the operating expenses of utilities, expenses tied to rental income, the cost of services, and expenses tied to other revenues. Retailers and wholesalers may include occupancy and buying costs in cost of goods sold. This is why a retailer's gross margin is not directly comparable with a manufacturer's.

In XBRL, companies usually tag the total as CostOfRevenue. CostOfGoodsAndServicesSold is a narrower element that excludes costs of financial services and other revenue-generating activities. Many filers report both, with separate lines for product costs and service costs.

Companies also differ on whether depreciation and amortization sit inside cost of revenue. SEC Staff Accounting Bulletin Topic 11.B provides that a company that leaves depreciation out of cost of sales must label the line as exclusive of depreciation. It should also avoid presenting a gross profit subtotal that ignores that depreciation. Check this before comparing gross margins across companies.