Cost of Goods Sold
Also called: COGS, cost of sales
What is Cost of Goods Sold?
Cost of goods sold, or COGS, is the direct cost of the products actually sold during a period. It is derived from stock movement rather than from purchases, because buying stock is not the same as selling it.
Why Cost of Goods Sold matters
COGS drives gross profit and, in a kitchen or shop, is the largest controllable cost there is. Using purchases as a substitute makes every month with a big delivery look like a disaster and every month without one look brilliant.
Cost of Goods Sold formula
COGS = Opening stock + Purchases − Closing stock
Include freight and non-creditable taxes in purchases for an accurate figure.
How Cost of Goods Sold works in practice
Compute it from opening stock plus purchases minus closing stock, which means an actual stock count at period end. Restaurants often run this weekly on high-value categories such as meat and liquor rather than monthly on everything.
Worked example
₹80,000 opening stock, ₹4,20,000 purchases and ₹95,000 closing stock give a COGS of ₹4,05,000 for the month.
Frequently asked questions
No. Purchases are what you bought; COGS is what you sold, adjusted for the change in stock.