Cost of Goods Sold

Cost of Goods Sold, or COGS, is the direct expense a company incurs when making a product, or supplying a service, such as raw materials and labor.  Cost of goods sold is also referred to as the Cost of Sales.  The costs of goods sold do not include indirect expenses such as administrative or selling expense.  If a company keeps an inventory, product, or raw materials, the cost of goods sold needs to account for changes to beginning and ending inventories;

The cost of goods sold is calculated as follows:

Starting Inventory + Additions = Goods Available for Sale

Goods Available - Ending Inventory = Cost of Goods Sold

The cost of good sold appears on the income statement.