Cost of goods sold
Cost of goods sold is the expense matching inventory cost to the period in which those units are sold; it is deducted from revenue on the income statement to arrive at gross profit.
Also known asCOGS · cost of sales
See it move
A waterfall chart derives the cost of goods sold by opening with an inventory balance of €3,200, adding purchases of €18,500 to give goods available for sale, then deducting closing inventory of €2,700. The cost of goods sold is €19,000 — the historical cost of stock that left the business and must be matched against revenue in the period.
The formula
Variables
- Cost of goods sold (€)
- Cost of goods manufactured in the period (€)
Manufacturer form
Variables
- Cost of goods sold (€)
Trading business form
Check yourself
Verona Foods reports opening finished-goods inventory of €4,500, cost of goods manufactured of €21,000, and closing finished-goods inventory of €3,000 for the period. What is cost of goods sold?
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
German HGB permits the last-in first-out (LIFO) cost formula for measuring inventory and, consequently, cost of goods sold. In periods of rising purchase prices, LIFO allocates the most recently acquired — and typically most expensive — units to COGS, producing a higher expense charge and leaving a lower balance in closing inventory.
IFRS
IAS 2 explicitly prohibits the LIFO formula. An entity reporting under IFRS must measure cost of goods sold using either the first-in first-out (FIFO) method or the weighted-average cost method. In a rising-price environment both permitted methods yield a lower COGS than LIFO and a closing inventory balance closer to current replacement cost.