Which account is not classified as a selling expense?
Select one:
a. Delivery Expense
b. Advertising Expense
C. Cost of Merchandise Sold
d. Sales Salaries
The correct answer and explanation is:
The correct answer is C. Cost of Merchandise Sold.
Explanation:
Selling expenses are the costs associated directly with the process of selling a product or service. These expenses typically include costs such as advertising, delivery, and sales salaries, as they are incurred to promote or facilitate the sale of goods or services. However, the Cost of Merchandise Sold (COGS) is a different category of expense, as it refers to the direct costs incurred to produce or purchase the goods that are being sold.
COGS includes expenses such as the cost of raw materials, labor, and manufacturing overhead needed to produce products. It represents the costs directly tied to the creation or acquisition of inventory. In contrast, selling expenses are considered period costs, which are expensed in the period in which they are incurred, whereas COGS is deducted from sales revenue to calculate gross profit.
In income statement terms, selling expenses are typically listed after gross profit and before operating expenses. The cost of goods sold, on the other hand, is subtracted from total revenue to determine the gross profit, reflecting the direct costs tied to the goods or services sold. This distinction is important for businesses to track, as it helps in understanding profitability at different levels of their operations. While selling expenses focus on the sales process, COGS reflects the fundamental cost to produce or acquire the products.