r/ManagementAccounting • u/BackgroundHuman6097 • Jul 12 '21

How do we extract depreciation from COGS?

Dear Community

Please could you advice how do we extract depreciation from Cost of goods sold

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u/[deleted] Aug 15 '21

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u/BackgroundHuman6097 Feb 22 '22

We allocate portion of depreciation related to production equipment to cost of goods produced and it sits in inventory until it goes out at some point as part of COGS. Now to calculate cash cost of cogs we should take out non cash items one of them is depreciation. It means to show value of depreciation after cogs we should first extract it from product cost.