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Cost of Goods Sold: Definition and Meaning
Definition
Cost of goods sold, often called COGS, is the direct cost of products sold by a business during a period.
Why It Matters
COGS is important for determining gross profit and gross margin. It commonly includes the purchase or production cost of inventory sold, but the exact components depend on the business’s operations and accounting policies.
For businesses that sell physical products, accurate inventory records and cost tracking are needed to calculate COGS reliably.
Example
A retailer sells products that originally cost $40,000 to purchase. The $40,000 is generally included in cost of goods sold for the period in which the products are sold.
Related Terms
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