What Is the Current Cost of Supplies (CCS)?

The current cost of supplies (CCS) refers to the net income of an oil & gas company after adjusting for the increase (or decrease) in actual expenses over the reporting period. CCS affects the net income of a company because those costs, which depend on commodities market prices, are used to adjust expenses over a reporting period.

Using CCS is advantageous to the straight net income figure for any line of business where manufacturing or production expenses vary significantly from one reporting period to the next.

Key Takeaways:

  • The current cost of supplies (CCS) accounts for the effects of costs of commodities on the net income of an oil & gas company.
  • The CCS uses the cost of oil supplies in businesses such as refining to make adjustments to net income over a reporting period.
  • Companies that deal in commodities or oil companies use CCS because the prices of commodities can vary greatly from one reporting period to another.

Understanding the Current Cost of Supplies

For companies that produce and sell commodities, the cost of supplies can have a significant impact on a company's net income. These are known as the costs of goods sold, or COGS in many industries, but differs in the context of accounting for oil & gas production.

For example, oil and gas prices are extremely volatile and affect companies that sell oil and gas. CCS is typically used in conjunction with the term CCS earnings. The current cost of supplies (CCS) refers to an adjusted net income figure that takes into account the increase or decrease in company expenses over the company's reporting period.

The Significance of Adjusted Net Income

Adjusted net income is the total amount of money that is earned from a business. The adjusted net income may be substantially different from the net income, also called profit or net earnings, disclosed on the profit and loss statement. This is because adjustments are made to the net income shown on the books so that actual earnings are available to prospective buyers of the business.

Adjustments to net income are necessary because most business owners minimize the amount shown on the business's "bottom line." They seek to show minimal net income to reduce their income tax burden. This process is legal if done properly.

Adjusted Net Income and Taxes

Although adjusted net income allows business owners to reduce the amount of tax they pay, it can become a problem if the owner decides to sell the business. The smaller the reported net income of a business, the lower its value. The contradiction is resolved by adjusting or "restating" earnings adding back to the net income figure the business expenses that were claimed on the books submitted with tax returns.

In summary, the adjusted net income figure is helpful in cases where the prices associated with manufacturing or producing a company's product change significantly between reporting periods. For example, the term is often used in the energy industry because the price of oil can change so much from one year to the next.