Which of the following statements is true?
A) Only service companies report both cost of goods sold and gross profit.
B) Cost of goods sold is the largest expense item for many firms.
C) Cost of goods sold is not affected by the choice of inventory valuation method.
D) Cost of goods sold equals gross profit.

Question

Quizplus · Accepted Answer

Cost of goods sold represents the cost incurred by a company to produce or purchase the goods sold during a specific period. It is typically the largest expense item for manufacturing and merchandising companies, and it is a necessary expense for these companies to generate revenue. Service companies do not report cost of goods sold, as they do not produce or sell physical goods. Therefore, option A is incorrect. Inventory valuation methods do affect cost of goods sold; different costing methods can lead to different values for inventory and cost of goods sold, affecting a company's profitability. Therefore, option C is incorrect. Gross profit is the difference between net sales revenue and cost of goods sold, so they are not equal. Option D is incorrect.

Which of the Following Statements Is True