Cost of Goods Sold

Cost of goods sold

The total cost of buying raw materials, and paying for all the factors that go into producing finished goods.

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cost of goods sold

The cost of purchasing materials and preparing goods for sale during a specific accounting period. Costs include labor, materials, overhead, and depreciation.

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Cost of Goods Sold

The cost to a business of making the products it sells over a given period of time. The cost of goods sold includes parts and labor expenses, but does not include shipping, advertising, or other indirect costs. COGS is included on a company's balance sheet and may be subtracted from revenue when calculating the company's gross margin. There are various ways to calculate COGS, but one of the most straightforward ways involves starting with the cost of starting inventory, adding sales over the given period, and then subtracting the cost of ending inventory. It is also called the cost of sales.

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Cost of Goods Sold

What Does Cost of Goods Sold Mean?

The direct costs incurred in the production of the goods sold by a company; it includes the cost of the materials and direct labor costs. Indirect expenses such as distribution costs and sales force costs are not part of COGS. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as cost of sales.

Investopedia explains Cost of Goods Sold

COGS consists of the costs that go into creating the products that a company sells; therefore, the only costs included in the measure are those which are tied directly to the production of the products. For example, the COGS for an automaker would include the material costs for the parts that go into making the car along with the labor costs used to put the car together. The cost of sending the cars to dealerships and the cost of the labor used to sell the car would be excluded. COGS differs from one industry to another. COGS is considered an expense. There are several ways to calculate COGS; one of the more basic ways is to start with the beginning inventory for the period and add the total amount of purchases made during the period and then deduct the ending inventory. This gives the total amount of inventory, specifically, the cost of the inventory sold by the company during the period. If a company begins with $10 million in inventory, makes $2 million in purchases, and ends the period with $9 million in inventory, the company's COGS would be $3 million ($10 million + $2 million - $9 million).

Related Terms:
• Accounts Payable
• Accrual Accounting
• Gross Margin
• Inventory
• Operating Income

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Cost of Goods Sold

Beginning inventory plus direct purchases, direct labor costs, and overhead costs less withdrawals for personal use and ending inventory. Sole proprietors compute their cost of goods sold in Part III of Schedule C.