Cost of goods sold: Difference between revisions
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Subtracting the ''cost of goods sold'' from the amount billed when selling the goods (''sales revenue'') produces the ''gross profit'' on the goods. |
Subtracting the ''cost of goods sold'' from the amount billed when selling the goods (''sales revenue'') produces the ''gross profit'' on the goods. |
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The ''net profit'', what most people understand as the business' [ |
The ''net profit'', what most people understand as the business' [ |
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==Accounting method== |
==Accounting method== |
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80,000 |
80,000 |
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Less: Inventory 12/31/03----- 10,000 |
Less: Inventory 12/31/03----- 10,000 |
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_______ |
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Net Cost of Goods Sold---------------- 70,000 |
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______ |
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Gross Profit on Sales------------------ $30,000 |
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</pre> |
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To determine the [[net income|net profit]], one would then compute the indirect expenses such as office expenses, light, heat, etc. Determining the cost of goods sold is the first step in arriving at the net profit. |
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If the COGS is too high, then the gross profit will not support the indirect expenses and the result will be a loss for the [[Accountancy|accounting]] period. |
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==See also== |
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*[[Income statement]] |
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*[[List of business and finance abbreviations]] |
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==External links== |
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Further reading: |
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*[http://www.accountingcoach.com/online-accounting-course/12Xpg01.html Cost of Goods Sold] Explanation and examples for Inventory and Cost of Goods Sold. |
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[[Category:Generally Accepted Accounting Principles]] |
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[[de:Cost of Goods Sold]] |
[[de:Cost of Goods Sold]] |
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Revision as of 03:47, 25 October 2007
Subtracting the cost of goods sold from the amount billed when selling the goods (sales revenue) produces the gross profit on the goods.
The net profit, what most people understand as the business' [
Accounting method
The revenue from merchandise sold must be matched with the COGS. Cost of sales or cost of goods sold is the identification of the cost of those items sold in the most recent accounting period. It can be done by specific identification, taking inventory, or different methods using estimates such as the "retail" method.
COGS is also the determining factor in arriving at gross profit and is determined under the periodic method as follows:
Sales--------------------------------- $100,000
Cost of Goods Sold
Inventory 01/01/03-- $ 5,000
Purchases------------ 45,000
Direct Labor--------- 30,000
_______
80,000
Less: Inventory 12/31/03----- 10,000
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