Is COGS the same as operating expenses?

No. COGS is the direct cost of the goods you sold, while operating expenses cover the cost of running the business regardless of sales volume — things like software, advertising, and admin. They're both expenses, but they sit in different sections of your P&L and tell you different things.

Does COGS include Amazon FBA fees?

Generally no — FBA fulfillment and storage fees are usually classified as selling expenses or cost of revenue rather than pure product COGS, though practices vary. What matters is consistency: pick a treatment and apply it the same way every month so your margin comparisons stay meaningful.

Why does my gross profit look different from my net profit?

Gross profit is revenue minus COGS only. Net profit subtracts every other expense too — ads, subscriptions, labor, Amazon selling fees. A healthy gross margin with a thin net margin usually points to high operating costs, not a pricing problem.

How does COGS affect my Amazon reimbursement claims?

Amazon now bases lost/damaged inventory reimbursements on your actual sourcing cost rather than retail price, defaulting to its own estimate if you haven't provided one. Accurate, per-SKU COGS records let you dispute low reimbursements with documentation instead of accepting Amazon's estimate.

Should I expense inventory when I buy it or when I sell it?

When you sell it. Inventory purchases should sit on your balance sheet as an asset until the unit ships to a customer, at which point its cost moves to COGS. Expensing at purchase time distorts your monthly profit and can misstate taxable income.

Learn · COGS & inventory

is cost of goods sold and expense

Short answer

Yes — cost of goods sold (COGS) is an expense, but it's a distinct category from operating expenses on your profit and loss statement. COGS captures the direct cost of producing or acquiring the goods you sold, and it's subtracted from revenue first, before other operating expenses, to calculate gross profit.

By Marcus Brandt · Head of Seller Accounting

Updated July 16, 2026

Every Amazon seller eventually asks this: is COGS just another expense, or is it something separate? The short version — it's an expense, but accountants treat it as its own category because of what it tells you about your business. Get this wrong and your gross margin, pricing decisions, and even your reimbursement claims can all be off.

COGS Is an Expense — But a Special One

On an income statement, expenses are grouped into categories, and COGS is one of them. It represents the direct cost of the inventory you sold during a period — unit cost, inbound freight, duty, and any cost required to get that specific product ready for sale. It does not include rent, software subscriptions, ad spend, or your own salary.

The reason accountants separate COGS from other expenses is gross profit. Revenue minus COGS equals gross profit — the number that tells you whether your products themselves are profitable before you layer on Amazon fees, advertising, and overhead. Lump COGS in with everything else and you lose that visibility entirely.

COGS vs. Operating Expenses: Where the Line Sits

Operating expenses (OpEx) are the costs of running the business, regardless of how many units you sold: Seller Central subscription, PPC spend, accounting software, contractor fees, storage fees not tied to a specific SKU. COGS, by contrast, scales directly with units sold — no sales, no COGS.

This matters for Schedule C and tax prep too. The IRS treats cost of goods sold as its own line, calculated separately from business expenses, and it directly affects taxable income. For reference on how the IRS frames this, see their guidance in IRS Publication 334, which walks through how COGS is computed for small business filers.

•COGS: unit cost, inbound freight/duty, manufacturing cost, packaging tied to the product
•OpEx: software, ads, labor, rent, professional fees, non-SKU-specific fulfillment costs
•COGS moves with sales volume; OpEx is largely period-based

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True COGS and live inventory value

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Why This Distinction Is Especially Important for Amazon Sellers

For FBA sellers, an accurate COGS number isn't just a bookkeeping nicety — it directly affects how much you get reimbursed when Amazon loses or damages your inventory. As of the current Amazon FBA inventory reimbursement policy, Amazon reimburses lost or damaged units based on the seller's actual manufacturing or sourcing cost — not retail price — and if you haven't submitted your own cost data, Amazon defaults to its own estimate, which is frequently lower than reality.

That means sellers who don't track landed COGS per SKU cleanly are often shortchanged on reimbursements without realizing it. If your books blend COGS into a general 'inventory expense' bucket instead of a per-unit landed cost, you lose the documentation needed to dispute a lowball reimbursement.

This is also where a lot of manual spreadsheets break down: inventory purchases, FBA fee changes, and multi-SKU freight allocations pile up fast. Purpose-built Amazon accounting software keeps landed cost per unit current automatically, so your COGS figure — and your reimbursement claims — reflect what you actually paid, not a guess.

How to Keep COGS and Expenses Separate in Practice

The cleanest approach: set up your chart of accounts with COGS as its own top-level section, separate from operating expenses, and post inventory purchases to an asset account (inventory) until the units actually sell. Only when a unit ships to a customer does its landed cost move from inventory (balance sheet) to COGS (income statement) — this is the matching principle in action.

Avoid the common mistake of expensing inventory purchases the moment you pay for them. That overstates expenses in the purchase month and understates them in the months you actually sell the stock, distorting your margin trend and making tax planning harder.

Frequently asked questions

Is COGS the same as operating expenses?: No. COGS is the direct cost of the goods you sold, while operating expenses cover the cost of running the business regardless of sales volume — things like software, advertising, and admin. They're both expenses, but they sit in different sections of your P&L and tell you different things.
Does COGS include Amazon FBA fees?: Generally no — FBA fulfillment and storage fees are usually classified as selling expenses or cost of revenue rather than pure product COGS, though practices vary. What matters is consistency: pick a treatment and apply it the same way every month so your margin comparisons stay meaningful.
Why does my gross profit look different from my net profit?: Gross profit is revenue minus COGS only. Net profit subtracts every other expense too — ads, subscriptions, labor, Amazon selling fees. A healthy gross margin with a thin net margin usually points to high operating costs, not a pricing problem.
How does COGS affect my Amazon reimbursement claims?: Amazon now bases lost/damaged inventory reimbursements on your actual sourcing cost rather than retail price, defaulting to its own estimate if you haven't provided one. Accurate, per-SKU COGS records let you dispute low reimbursements with documentation instead of accepting Amazon's estimate.
Should I expense inventory when I buy it or when I sell it?: When you sell it. Inventory purchases should sit on your balance sheet as an asset until the unit ships to a customer, at which point its cost moves to COGS. Expensing at purchase time distorts your monthly profit and can misstate taxable income.

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