What is cost of goods sold?

Cost of goods sold (COGS) is the direct cost of the products a business sold during a period. Subtracting it from sales revenue gives gross profit, so it is one of the most important lines on an income statement and the starting point for most inventory ratios.

Formulas

Goods available for sale = beginning inventory + purchases
Cost of goods sold = goods available for sale − ending inventory

Worked example

You began with 30,000.00 of stock and bought 85,000.00 more, so 115,000.00 was available for sale. With 25,000.00 left at the end, cost of goods sold is 90,000.00.

How to use the cost of goods sold calculator

Enter your figures: beginning inventory, purchases during the period and ending inventory.
Read the result. It updates as you type, so there is no button to press.
Try other numbers to compare scenarios. Reset brings back the example values.

Getting it right

Purchases should include freight in and import duties, less any returns to suppliers and discounts received.
For a manufacturer, replace purchases with the cost of goods manufactured in the period.
Selling, marketing and office costs are not part of COGS; they are operating expenses.

Frequently asked questions

How do you calculate cost of goods sold?

Add purchases made during the period to beginning inventory, then subtract ending inventory. Starting with 30,000, buying 85,000 and ending with 25,000 gives a COGS of 90,000.

What is included in cost of goods sold?

The cost of the goods themselves, inbound shipping, and for manufacturers the direct labour and factory overhead that went into making them.

Is COGS the same as cost of sales?

For businesses that sell goods the two terms are used interchangeably. Service companies tend to say cost of sales or cost of revenue because they hold little or no inventory.

Cost of Goods Sold Calculator

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