Fundamentally, there is almost no difference between a company's listed cost of goods sold (COGS) and cost of sales. The two terms are typically used interchangeably in an accounting context.
Cost of sales, also known as the cost of revenue, and cost of goods sold (COGS) both keep track of how much it costs a business to produce a good or service to be sold to customers. Both cost of sales and COGS include the direct costs associated with the production of a company's goods and services. These costs include direct labor, direct materials, such as raw materials, and the overhead that's directly tied to the production facility or manufacturing plant.
The cost of sales and COGS are key metrics in cost analysis since they show the operational costs of the production of goods and services. If cost of sales is rising while revenue has stagnated, it might be an indication that input costs have increased or other direct costs are not being appropriately managed. Cost of sales and COGS are subtracted from total revenue to yield gross profit.
Retailers typically use cost of sales, whereas manufacturers use cost of goods sold. Since service-only businesses cannot directly tie any operating expenses to something tangible, they cannot list any cost of goods sold on their income statements. Instead, service-only companies typically show cost of sales or cost of revenue. Businesses that might have no cost of goods sold include attorneys, painters, business consultants, and doctors.
Some service providers offer secondary products to their customers; for example, airlines offer food and beverages, and some hotels sell souvenirs. The costs associated with these items can also be listed as cost of goods sold. Companies that offer both services and goods are likely to have both cost of goods sold, and cost of sales appear on their income statements.