In the context of inventory accounting, what does COGS stand for?

The term COGS stands for "Cost of Goods Sold." This is a fundamental concept in inventory accounting, representing the direct costs attributable to the production of the goods that a company sells during a specific period. COGS includes expenses such as the cost of raw materials, direct labor, and any other costs directly tied to the production of products.

Understanding COGS is crucial because it directly impacts a company's financial statements, particularly the income statement. When calculating gross profit, COGS is subtracted from total revenue, allowing businesses to assess their profitability related to the sales of goods.

The other options provided do not accurately reflect the meaning or purpose of COGS in accounting. This distinction is important for analyzing a company’s financial performance and making informed business decisions.