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UNDERSTANDING ACCOUNTING TALK 22 Sales & Cost of Goods Sold vs Inventory

by ren on November 2nd, 2007

In some Income Statements (especially in the Income Statements of trading, merchandising & manufacturing firms), a refinement in the reporting of Sales is introduced by including the Cost of Goods Sold (i.e., the cost of the goods or products taken from inventory).

As explained in post 21, the Cost of Goods Sold is the value of the goods or products when these were bought (for future sales, in the case of a trading or merchandising firm) or their total cost (raw materials + cost of labor + allocated general & administrative expenses, transport, etc) when they were produced (in the case of a manufacturing firm). In other words, the Cost of Goods Sold is the carrying cost in Inventory.

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POSTED IN: Accounting for NonAccountants, Cost of Goods Sold, Inventory