![]() Whoever prepares your taxes should advise you on what valuation method you should use for your business. However, for the DIY CEO, calculating cost of goods sold requires a bit of information prep beforehand in order to report accurately. Typically, the CFO or other certified accounting professional would handle these calculations because it’s not as simple as the example above would suggest. ![]() Now let’s look more closely at how to calculate COGS. (Beginning Inventory + Purchases) – Ending Inventory = COGS Here is the accepted COGS equation used by accountants: Software, hardware, office rent, utilities, etc.Office staff: everyone directly involved in producing the product.The workforce (people) who put the products together, ship the parts, etc.Shipping parts and equipment to the warehouse to create the product, including containers, freight, fuel surcharges, etc.All supplies required in the production of the product.The parts or machines required to create the product.The cost of any and all items purchased for resale and/or to create the product.The cost of all the raw materials needed for the products.The individual costs of all parts used to build or assemble the products.The cost of goods sold is essentially the wholesale price of each item, which includes the direct labor costs required to produce each product. What’s included in the cost of goods sold? COGS excludes indirect costs, such as distribution and marketing. Also referred to as “cost of sales,” or "COGS report," COGS includes the cost of materials and labor directly related to the production and manufacturing of retail products. What does COGS stand for?Ĭost of goods sold (COGS) is the direct cost of producing products sold by your business. This guide will walk you through what’s included in COGS, how to calculate it, and different ways to help prepare for tax season. ![]() Retailers need to track the cost of goods sold (COGS) to ensure they are profitable and reporting expenses to the IRS correctly.Ĭonsidering that 60% of small business owners feel they don’t have enough knowledge about accounting and finance, it’s a good idea to understand how COGS can impact your accounting and sales. ![]()
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