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Is sales commissions a cost of goods sold or operating expense?

While sales commissions are directly related to the sale of a product or service, the cost is considered a selling expense. Selling expenses are a type of operating expense and would not be factored into cost of goods sold or gross profit.

Remember that operating expenses are considered period costs and not product costs, and they come below gross profit on the income statement.

The visual below lists out the various types of selling expenses. As you can see, expenses to the sales team include compensation and commissions.

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