Cost of Goods Sold (sometimes referred to as "cost of sales" or COGS) is a figure which reflects the cost of raw materials used to produce a product to sell to customers. COGS is the direct costs of producing a product for sale. It could be:
- Cost of items purchased for resale
- Cost of raw materials used to produce a product, or
- Cost of parts used to construct a product
- Beginning inventory $500
- Plus cost of goods purchased $800
- Equals goods available for sale $1300
- Less ending inventory (at the end of the accounting year) $700
- Equals Cost of Goods Sold $600
The calculation of COGS varies by industry. For example, a retail business buys products, marks them up, and resells them. A manufacturer buys raw materials, turns them into finished products and sells them. Some businesses buy parts and assemble them. The calculation also depends upon whether you use FIFO (First-In, First-Out) or LIFO (Last-In-First-Out) inventory cost valuation.
Cost of Goods Sold is part of the calculation of gross revenue on your business tax form, depending on your type of business.
Read more about cost of good sold, including how to calculate this amount, how it is included in your business tax return, and how to keep records for cost of goods sold.