{"id":27174,"date":"2024-01-31T17:12:19","date_gmt":"2024-01-31T17:12:19","guid":{"rendered":"https:\/\/swoopfunding.com\/us\/uk\/business-glossary\/cost-of-goods-sold\/"},"modified":"2025-04-24T14:06:20","modified_gmt":"2025-04-24T14:06:20","slug":"cost-of-goods-sold","status":"publish","type":"business-glossary","link":"https:\/\/swoopfunding.com\/us\/business-glossary\/cost-of-goods-sold\/","title":{"rendered":"Cost of goods sold"},"content":{"rendered":"

Definition<\/strong><\/h3>\n

Cost of goods sold (COGS) is a key accounting metric that represents the direct costs incurred by a company in the production or purchase of the goods or services it sells during a specific period.<\/p>\n

What is the cost of goods sold?<\/strong><\/h3>\n

COGS is a key component in calculating a company’s gross profit, and is a crucial figure in the income statement<\/a> as it is deducted from revenue to calculate gross profit<\/a>.<\/p>\n

Calculation of COGS:<\/p>\n

COGS = Opening inventory + Purchases or production costs \u2212 Closing inventory<\/p>\n

Different industries may have different methods for calculating and presenting COGS. For example, a manufacturing company’s COGS will include costs like raw materials and direct labour, while a retail company’s COGS may include the cost of purchasing goods for resale.<\/p>\n

COGS is a deductible expense when calculating taxable income. The lower the COGS, the higher the potential taxable income and tax liability.<\/p>\n

Example of cost of goods sold<\/strong><\/h3>\n

Suppose ABC Electronics is a company that manufactures smartphones. Here’s how you might calculate COGS for a specific period, such as a quarter:<\/p>\n

    \n
  • Opening inventory (Beginning of the quarter)<\/strong>: ABC Electronics had $500,000 worth of smartphones in inventory at the beginning of the quarter.<\/li>\n
  • Purchases or production costs (During the quarter)<\/strong>: During the quarter, ABC Electronics incurred direct costs associated with manufacturing smartphones, including raw materials, labour, and manufacturing overhead. Let’s say these costs amounted to $1,000,000.<\/li>\n
  • Closing Inventory (End of the quarter)<\/strong>: At the end of the quarter, ABC Electronics had $300,000 worth of smartphones still in inventory.<\/li>\n<\/ul>\n

    Now, COGS can be calculated:<\/p>\n

    COGS = $500,000 + $1,000,000 – $300,000 = $1,200,000<\/p>\n

    In this example, ABC Electronics incurred $1,200,000 in costs directly associated with producing or purchasing smartphones for sale during the quarter.<\/p>\n","protected":false},"author":1,"template":"","class_list":["post-27174","business-glossary","type-business-glossary","status-publish","hentry"],"acf":[],"featured_image_urls_v2":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","image_blog":"","image_blog_full":"","image_podcast":"","image_banking":"","image_blog_internal":"","image_blog_medium":"","image_single_banking":""},"post_excerpt_stackable_v2":"

    Definition Cost of goods sold (COGS) is a key accounting metric that represents the direct costs incurred by a company in the production or purchase of the goods or services it sells during a specific period. What is the cost of goods sold? COGS is a key component in calculating a company’s gross profit, and is a crucial figure in the income statement as it is deducted from revenue to calculate gross profit. Calculation of COGS: COGS = Opening inventory + Purchases or production costs \u2212 Closing inventory Different industries may have different methods for calculating and presenting COGS. For…<\/p>\n","category_list_v2":"","author_info_v2":{"name":"root","url":"https:\/\/swoopfunding.com\/us\/author\/root\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/us\/wp-json\/wp\/v2\/business-glossary\/27174","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/swoopfunding.com\/us\/wp-json\/wp\/v2\/business-glossary"}],"about":[{"href":"https:\/\/swoopfunding.com\/us\/wp-json\/wp\/v2\/types\/business-glossary"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/us\/wp-json\/wp\/v2\/users\/1"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/us\/wp-json\/wp\/v2\/media?parent=27174"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}