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Inditex Forecastings • COGS is an expense that is incurred because a sale takes place. For example in a pizza shop, the dough and toppings (sauce, cheese, pepperoni, etc.) are the COGS related to selling the pizza. • Operating Expenses are the basically fixed monthly cost of running your business. Regardless of the level of your sales, the rent, utilities (electric, gas, phone, etc.) are the same. 3

Inditex Forecastings • Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally expensed based on the time period over which the asset was used. • Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company's income statement. • Depreciation , on the other hand, refers to prorating a tangible asset's cost over that asset's life. For example, an office building can be used for a number of years before it becomes run down and is sold. The cost of the building is spread out over the predicted life of the building, with a portion of the cost being expensed each accounting year. • A&D do not imply that you are paying the cost in a yearly basis. • You pay the first year but you use A&D to pay less taxes. 4