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Accounting & Reporting

Cost of Goods Sold

Also called: COGS, cost of sales, cost of revenue

Cost of goods sold is the direct cost of producing what you actually sold in the period — materials, direct labour, manufacturing overhead. It excludes selling and administrative costs, which sit below gross profit. What a company chooses to put in COGS versus operating expenses moves its gross margin without changing profit at all, which is why gross margins are only comparable within an industry.

Formula

COGS = Opening inventory + Purchases − Closing inventory

Want more than a definition? Learn it in Capital Quarters →

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