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March 10, 2008

What is the cost of goods sold?

The cost of goods sold is the cost of the merchandise that a retailer, distributor, or manufacturer has sold.

The cost of goods sold is reported on the income statement and can be considered as an expense of the accounting period. By matching the cost of the goods sold with the revenues from the goods sold, the matching principle of accounting is achieved.

The sales revenues minus the cost of goods sold is gross profit.

Cost of goods sold is calculated in one of two ways. One way is to adjust the cost of the goods purchased or manufactured by the change in inventory of finished goods. For example, if 1,000 units were purchased or manufactured but inventory increased by 100 units then the cost of 900 units will be the cost of goods sold. If 1,000 units were purchased but the inventory decreased by 100 units then the cost of 1,100 units will be the cost of goods sold.

The second way to calculate the cost of goods sold is to use the following costs: beginning inventory + the cost of goods purchased or manufactured = cost of goods available - ending inventory.

When costs change during the accounting period, a cost flow will have to be assumed. Cost flow assumptions include FIFO, LIFO, and average. You can learn more about these cost flow assumptions and the cost of goods sold at Inventory and Cost of Goods Sold.

AccountingCoach.com also has three FREE interactive Crossword Puzzles on Inventory and Cost of Goods Sold.

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Comments

5 Responses to “What is the cost of goods sold?”

  1. Omaid on March 13th, 2008 12:51 am

    Hello,
    If a bank has more assets against the laibilities, in any way the bank is in good financial position or How?

  2. hulisani on April 11th, 2008 2:23 pm

    the cost of goods sold can mostly include the following costs

    raw material
    wages or salaries
    transportation
    direct overheads and indirect overheads

    in simple term you can say is all the cost we incured when producing the product until it is ready for sale.

  3. Umer kheyam on December 12th, 2008 7:16 am

    The cost of goods sold is the cost of the merchandise that a retailer, distributor, or manufacturer has sold.

  4. Megan on May 21st, 2009 1:02 pm

    Relating to inventory purchased.
    1. Can I book inventory directly to COGS instead of Inventory upon purchase?

    Dr. COGS
    Cr. AP

    then later book any adjustment to inventory?

  5. taylor on November 16th, 2009 11:22 am

    is the cost of good sold the total price of the good or is it just the unit price? and what needs to be credited and debited?

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