Question

Besides not being required, why do you think a company would choose to report or not report a gross profit line? Why do you think many service companies in particular do not report a gross profit line?

Answer 1

Answer:

Gross profit = net sales revenue - cost of goods sold. But what happens when your company doesn't sell any goods, specially if they only sell services and it is impossible to determine the COGS.

This is basically an accounting issue since the IRS defines COGS as:

1. The cost of products or raw materials, including freight  
2. Storage
3. Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products
4. Factory overhead the cost of inventory items sold

So if your company doesn't sell any items from inventory, the IRS will not consider that your company incurred in COGS.

Reporting COGS is very useful for deducting business expenses, but it is not mandatory. Also, any expenses deducted as COGS cannot be deducted again as any other type of cost. So it is simply an accounting practice that helps certain industries to report their business expenses more clearly and in an orderly manner. But if it is too complicated to determine your company's COGS, then you can report your expenses in other ways and reduce your problems.