What category does 'labor' belong to on an income statement?

Labor costs are typically classified under the category of 'Cost of Goods Sold' (COGS) on an income statement. COGS represents the direct costs attributable to the production of goods sold by a company. This includes not only the raw materials and supplies used to create products but also direct labor costs involved in the manufacturing process.

When labor specifically refers to workers who are directly engaged in producing goods, their wages and benefits fall under COGS because they are essential to the production of those goods. This accounting classification is critical for accurately calculating gross profit, as it helps provide a precise view of the expenses involved in generating revenue.

In contrast, operating expenses generally encompass costs that are not directly tied to product creation, such as sales and marketing, administrative expenses, and utilities. Revenue, on the other hand, refers to the total income generated from the sale of goods or services before any expenses are deducted. Net profit is the amount remaining after all expenses, including COGS and operating expenses, have been deducted from revenue.

Thus, labor classified under COGS provides a clearer understanding of the costs directly linked to production, playing a crucial role in financial analysis and decision-making within a business.