Learn in the textbookFundamentals of Profit and Loss Calculation
DefinitionCost (原価) is the expense of preparing and selling goods. In the income calculation, the purchase or production cost of the goods sold in the period is first deducted from sales as the cost of sales (売上原価).
ExplanationThe value of goods on hand at the start and end of the period is the inventory amount (棚卸高), and what is still unsold at the end is left out of the period's cost of sales. The name of a cost changes with which expenses it includes: the manufacturing cost (製造原価) of making a product plus the operating expenses (営業費) of selling and administration is called the total cost (総原価).
AnalogyAt a bakery, the cost is what was spent on flour and other materials to make and sell the bread, not the price on the shelf tag.