How is the Cost of Goods Sold calculated for a given period?

The Cost of Goods Sold (COGS) represents the direct costs attributable to the production of the goods sold by a company. It is calculated by taking into account the inventory available at the beginning of the period, adding any inventory purchased during that period, and then subtracting the ending inventory.

In this formula, beginning inventory refers to the amount of inventory that a company has on hand at the start of the period. Newly purchased inventory reflects any additional stock acquired throughout the period. The ending inventory is the stock that remains unsold at the end of the period. By applying this formula, the COGS is effectively showing how much of the inventory was used to generate sales during the specified period.

This approach helps businesses determine the direct costs tied to their production activities, which is crucial for understanding profit margins and making informed financial decisions. Additionally, it allows for accurate financial reporting and aids in inventory management.