Which of the following is a credit to cost of sales?

Which of the following is a credit to cost of sales?

• A. Grease sales
• B. Customer tips
• C. Menu development costs
• D. Rent expense

Answer: (A)

When cost of sales can be reduced by by-product revenue, that revenue is recorded as a credit to cost of sales. Selling used fryer grease provides value back to the operation, offsetting the costs tied to producing the menu items (the oil, maintenance, and related expenses). So the grease sale appears as a credit to the cost of sales, lowering the net COGS. The other items don’t reduce cost of sales. Customer tips are additional income and aren’t used to offset the cost of goods sold. Menu development costs and rent expense are operating expenses that increase overall costs rather than reduce them, so they wouldn’t be credited to cost of sales.

When cost of sales can be reduced by by-product revenue, that revenue is recorded as a credit to cost of sales. Selling used fryer grease provides value back to the operation, offsetting the costs tied to producing the menu items (the oil, maintenance, and related expenses). So the grease sale appears as a credit to the cost of sales, lowering the net COGS.

The other items don’t reduce cost of sales. Customer tips are additional income and aren’t used to offset the cost of goods sold. Menu development costs and rent expense are operating expenses that increase overall costs rather than reduce them, so they wouldn’t be credited to cost of sales.