Explanation

COGS (Cost of Goods Sold) is an expense account that is subtracted from Revenue to calculate Gross Profit.

As COGS increases, Gross Profit and subsequently Net Income decrease.

The impact of COGS on the income statement:

• Revenue > COGS = Gross Profit > Operating Expenses = Net Income
• Higher COGS → Lower Gross Profit → Lower Net Income
• Lower COGS → Higher Gross Profit → Higher Net Income