Cost of Goods Sold (COGS) is an income statement item that records the costs associated with producing a product or service that has been sold. It includes direct costs, such as materials and labor, as well as indirect costs, such as depreciation of equipment used in production. By accurately tracking COGS, businesses can better measure the efficiency of their operations and make more informed decisions about pricing and production. COGS also allows for more accurate measurements of a company’s gross profit and net income.