Cost of Goods Sold

Calculating Cost of Goods Sold

Cost of goods sold represents the cost assigned to inventory that has been sold during the accounting period. It is one of the largest expenses reported on the income statement.

Beginning Inventory + Net Purchases − Ending Inventory = Cost of Goods Sold

• Higher ending inventory results in lower COGS.
• Lower ending inventory results in higher COGS.
• COGS directly affects gross profit.
• Inventory errors affect multiple accounting periods.