What is the Cost of Goods Sold Formula?
What is the cost of goods sold formula?
The cost of goods sold formula (also known as the cost of sales formula or equation) is:
Or to spell it out here:Cost of Goods Sold = Opening Inventories + Purchases - Closing Inventories
in the above formula actually has various sub-components, which they love to test you on in accounting tests and exams. Purchases are made up of the following:
- Actual purchase cost,
- Carriage (transport costs),
- Import duties,
- Purchases returns.
The full total of purchases (which would go in the cost of goods sold formula) would thus be:Total Purchases = Purchases (purchase costs) + Carriage + Import duties - Purchases Returns
See the full lesson on Sales, Cost of Goods Sold and Gross Profit
for a full explanation of the cost of sales formula and gross profit.
Scroll down further below for more questions and answers on the cost of goods sold formula, as well as related tutorials.
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