Articles Blog
Business Financials – What is Cost of Goods Sold?
- Details
-
Published on Thursday, 16 June 2016 18:42
Cost of goods sold (COGS) refers to the cost of the goods/product that was sold to customers. The COGS is known as Cost of Sales (COS) and is usually reported on the profit and loss when the sales revenues of the goods sold are reported (in the same month/period).
A retailer's cost of goods sold includes the cost from its supplier plus any other costs necessary to get the product into inventory and ready for sale.
For example, a store purchases a shirt from a wholesaler. If the cost is $50 plus $5 in delivery costs, the store reports $55 in its Inventory account until the shirt is sold. When the shirt is sold, the $55 is removed from inventory and is moved and reported as cost of goods sold on the profit and loss. This means the cost aligns when sold in the same period.
COGS is usually the largest expense on the profit and loss of a company selling products or goods. Cost of Goods Sold are deducted from the sales/revenue in the Profit and Loss report.
Put another way, the FULL Cost of goods sold is calculated as follows: Cost of beginning inventory + cost of goods purchased (net of any return stock) + freight-in - cost of ending inventory. This calculated amount will be deducted from the sales amount on the income statement, leaving a Gross Profit.
Need help? Not sure?
Call for FREE 30min advice / strategy session today! Aus +61 407 361 596
and also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
