Q&A: How to account for contracted labor expenses. COGS or Period Expense?

Question by Dan S: How to account for contracted labor expenses. COGS or Period Expense?
My business hires music instructors on a contract basis to give lessons to students. I record the entire revenue generated from them as Sales but give 50% to the contractor as compensation. Should the 50% be accounted for as a labor/sg&a expense or should it be recorded as a cost of goods sold and decrease my gross profits?

Best answer:

Answer by Sandy
Since you’re rendering a service as opposed to selling a good, the payments to music instructors are a direct cost of providing those services and should therefore go into cost of services rendered. (equivalent to COGS)

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