Cost of Goods Sold (COGS) is an accounting term that describes the costs associated with producing a product or service for sale. It represents the direct costs to produce a good or service, such as materials and labor. COGS includes specific costs related to the creation of a product or delivery of a service, such as raw materials, wages, and cost of components purchased from suppliers. COGS does not include general business expenses, such as administrative fees, advertising expenses, office supplies, rent, etc. Understanding COGS enables businesses to optimize their operating costs and maximize profits.