Cost of Goods Sold (COGS) is an accounting principle used to measure the cost incurred in producing a product or providing a service. It represents the direct costs associated with the production or purchase of goods and services, such as raw materials, labor, and other overhead expenses. The COGS asset or liability refers to the difference between the company’s purchase and selling price of inventory items. A positive balance means the company has earned more than it spent on the inventory and is therefore considered an asset; whereas a negative balance indicates that the company has spent more than it earned from the sale of its inventory and is, therefore, considered a liability.