COGS is one of the important terms which is used in the context of accountancy, full form of COGS is Cost of Goods Sold. Cost of goods sold basically tells how much cost it takes to produce goods which in turn plays an important role in deciding the gross profit figure of the company as higher COGS implies lower gross profit figure for the company and lower COGS implies higher gross profit for the company during a financial year. Given below are some of the common questions about COGS which troubles the majority of students who are in the accounting field –
Common Questions regarding COGS
What is the formula for cost of goods sold?
The formula for calculating COGS is = Opening stocks of goods + Purchases made during the year by the company – Closing stock of goods, where opening stock is the stock which was left with company during the previous financial year and when company purchases any new stock it gets added to opening stock from which stock remaining with company at the end of the year is subtracted. Another way of calculating COGS is to deduct the gross profit figure from the sales figure.
What is Example of cost of goods sold?
Suppose a company sells boxes and at the beginning of the year company has $10000 worth of boxes and during the year company purchases $20000 worth of boxes and at the end of the year $5000 worth of boxes remain with the company than it COGS will be $25000 ($10000+$20000-$5000). If the company’s net sales are $40000 than company’s gross profit will be $40000 -$25000 = $15000.
What is included in cost of goods sold?
In cost of goods sold all direct expenses related to the production of goods are included, hence for example direct material cost, direct labor cost is included in the cost of goods sold but it excludes all indirect expenses like selling cost, marketing expense, administration expenses and so on.
What is the difference between COGS and expenses?
Difference between COGS and expenses is that while in case of cost of goods sold only expenses related to the production of goods are considered while in case of expenses it included all expenses that is direct expenses related to production of goods as well as indirect expenses like administration expenses, selling expenses, distribution expenses and so on.
Is Cost of Sales same as cost of goods sold?
Yes, cost of sales and cost of goods sold are same, in simple words the cost of sales is another name for the cost of goods sold.