Cost of Goods Sold
Direct cost of goods sold in a period.
Formula
Live Calculator
MembersVariables
Example
Inventory flow
How it works
Cost of goods sold measures the value of inventory that was actually sold during a period. You start with what you had on hand, add what you bought or produced during the period, and then subtract what is still left unsold; whatever remains must be the cost of the items that left stock and became expense. This works because inventory is a rolling stock account: everything available to sell must end up either still in inventory or included in COGS.
When to use it
Use this formula in accounting and business reporting when you need to calculate the expense tied directly to sales, especially for merchandising or inventory-based businesses. It is also useful when preparing gross profit, managing stock records, or checking whether inventory balances make sense.
Worked example, step by step
Step 1: Identify the amounts. Beginning inventory = $18,000 Purchases = $42,500 Ending inventory = $15,200 Step 2: Substitute into the formula. COGS = Beginning + Purchases - Ending COGS = 18,000 + 42,500 - 15,200 Step 3: Add the inventory available for sale. 18,000 + 42,500 = $60,500 Step 4: Subtract ending inventory. 60,500 - 15,200 = $45,300 Final answer: Cost of goods sold = $45,300
Common mistakes to avoid
- subtracting beginning inventory instead of adding it
- using sales revenue in place of purchases
- forgetting that ending inventory must be counted as unsold stock and removed from the total
Did You Know?
Cost of goods sold directly shapes gross profit, making inventory accounting surprisingly high-stakes.
Share this formula
More in Accounting
View allAccounting Equation
BasicThe foundation of double-entry bookkeeping: everything a business owns is financed either by debt or by owners’ capital.
Cost of Goods Sold
BasicThe direct cost of the inventory actually sold during a period.
Gross Profit
BasicWhat remains from sales after subtracting the direct cost of the goods sold, before operating expenses.
Net Income
BasicThe “bottom line” — total earnings after all expenses, interest and taxes are deducted from revenue.
Retained Earnings
BasicCumulative profit kept in the business rather than paid out to shareholders.
Current Ratio
IntermediateA liquidity measure of whether a firm can cover its short-term obligations with short-term assets.