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Cost Of Goods Sold

Definition

COGS. An income statement figure which reflects the cost of obtaining raw materials and producing finished goods that are sold to consumers. Cost of Goods Sold = Beginning Merchandise Inventory + Net Purchases of Merchandise - Ending Merchandise Inventory.

For example:
Beginning Merchandise Inventory = $150,000
Net Purchases of Merchandise = $400,000
Ending Merchandise Inventory = $125,000
COGS = 150,000 + 400,000 - 125,000 = $425,000.

In standard accounting practices, gross margin can be calculated by subtracting the cost of goods sold from total sales.