What does it mean when a company has a major expense? Like for example, "The major expense for Dollar Tree Inc. is called Cost of Goods Sold, which represents the cost of the goods Dollar Tree sold to it's customers". But isn't expense a cost, it decreases net income? I did not understand this statement.

Answered: What does it mean when a company has a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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What does it mean when a company has a major expense? Like for example, "The major expense for Dollar Tree Inc. is called Cost of Goods Sold, which represents the cost of the goods Dollar Tree sold to it's customers". But isn't expense a cost, it decreases net income? I did not understand this statement.

Expert Solution

Step 1

For your understanding -

There are two types of cost direct costs and indirect costs.

Direct costs are the costs that are incurred by the company in the production or manufacturing of goods and services.

For example - Direct material, direct labor, etc.

Indirect costs - Indirect costs are incurred indirectly in the production of goods and services and selling those goods to customers and other admin expenses.

Example - Indirect labor, Admin and selling expenses etc.