Cost of Sales Labour

This Direct Expenses code records costs directly tied to producing sales, relating to cost of sales labour. As an expense account, it normally carries a debit balance: debit entries increase the balance and credit entries decrease it.

Real-world examples

Logistics and fulfilment (own workforce)

An e-commerce fulfilment operator's warehouse pickers and packers are all employed staff, so their wages allocated to order fulfilment — say £6,800 for the period — go through a payroll journal: a debit of £6,800 to 6001 (Cost of Sales Labour) and a credit of £6,800 to the wages control account. As with any employed labour, there's no VAT in this entry — wages fall outside the scope of VAT regardless of how directly the role is tied to fulfilling sales.

Field-service and installation (agency-supplied staff)

A home-improvement installer (windows, kitchens) brings in agency-supplied fitters to cover a busy quarter rather than recruiting permanently. The agency's invoice — say £1,440 (£1,200 net) — is treated as an ordinary VATable purchase: a debit of £1,200 to 6001, a debit of £240 to 2201, and a credit of £1,440 to 2100. Because this labour is bought in rather than employed, VAT applies in a way it never would on a payroll-based entry.

Commonly confused with

Because code 6000 (Productive Labour) sits right next to this one in Direct Expenses, it's a common mis-posting target. Code 6001 is specifically for cost of sales labour, while 6000 covers productive labour — similar in nature, but keeping them separate is what makes the direct expenses section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

Posting to the wrong cost code here won't change total cost of sales, but it will distort gross margin analysis by category, making it harder to see which input costs are actually rising.

Other codes in Direct Expenses