UNDERSTANDING ACCOUNTING TALK 23 How Cost of Goods Sold is figured
Figuring out the Cost of Goods Sold on a per item basis is a tedious and unnecessary process. In most cases, goods or products enter the Inventory at varying times and at varying costs. There are changes in the cost of raw materials, labor, transport, etc, from period to period and from time to time. It will be very difficult to be accurate even with the aid of a computer.
The science of accounting has established a procedure for figuring out the Cost of Goods Sold on a wholesale basis, thus avoiding the tedious process of a per item costing.
To the beginning Inventory of a period (which is the ending Inventory of the previous period), the value of Purchases during the same period are added. From the result is subtracted the ending Inventory of the period. The final result is the Cost of Goods Sold corresponding to the Sales during the period. The simple computation is as follows:
