Which items are credits to cost of sales?

Which items are credits to cost of sales?

• A. Employee meals
• B. Complimentary meals to guests
• C. Grease sales
• D. Employee meals, Complimentary meals to guests, and Grease sales

Answer: (D)

The main idea here is understanding what reduces the amount recorded as cost of sales. Some items aren’t sold to customers, or are by-products that generate revenue, so they effectively lower the cost of goods that get recognized as the cost of sales. Employee meals are taken by staff from the inventory that would have gone to customers, so their cost isn’t part of the menu revenue. Since these meals aren’t sold, the cost associated with them is credited back against cost of sales. Complimentary meals to guests follow the same logic: meals provided for free aren’t revenue-generating sales, so their cost reduces the overall cost of sales rather than adding to it. Grease sales represent revenue from selling a by-product of food preparation. That income offsets the costs already incurred to produce the menu items, so it’s recorded as a credit that reduces cost of sales. Together these three reduce the reported cost of sales, which is why each is considered a credit to cost of sales. For example, if costs before adjustments are 100,000 and there are credits of 3,000 (employee meals), 2,000 (comps), and 1,000 (grease sales), the adjusted cost of sales would be 94,000.

The main idea here is understanding what reduces the amount recorded as cost of sales. Some items aren’t sold to customers, or are by-products that generate revenue, so they effectively lower the cost of goods that get recognized as the cost of sales.

Employee meals are taken by staff from the inventory that would have gone to customers, so their cost isn’t part of the menu revenue. Since these meals aren’t sold, the cost associated with them is credited back against cost of sales.

Complimentary meals to guests follow the same logic: meals provided for free aren’t revenue-generating sales, so their cost reduces the overall cost of sales rather than adding to it.

Grease sales represent revenue from selling a by-product of food preparation. That income offsets the costs already incurred to produce the menu items, so it’s recorded as a credit that reduces cost of sales.

Together these three reduce the reported cost of sales, which is why each is considered a credit to cost of sales. For example, if costs before adjustments are 100,000 and there are credits of 3,000 (employee meals), 2,000 (comps), and 1,000 (grease sales), the adjusted cost of sales would be 94,000.