We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is Included on a Cost of Goods Sold Statement?

Helen Akers
By
Updated: May 17, 2024
Views: 11,395
References
Share

A cost of goods sold statement reflects a company's actual inventory costs. The statement starts with beginning inventory and adds in new purchases and expenses. Ending inventory is subtracted to arrive at cost of goods sold. Manufacturing firms factor direct materials, labor, factory overhead, work in progress and finished inventory into the expense section.

Beginning inventory is the first entry on a cost of goods sold statement. This figure reflects the book value of a company's existing inventory at the start of an accounting period. For example, if a company is figuring cost of goods sold on a quarterly basis, the beginning inventory for the fourth quarter would be equal to the ending inventory from the third quarter.

Companies that do not manufacture their own goods will typically add in inventory purchases. The second line of a cost of goods sold statement reflects the amount of inventory that was purchased during the period. After purchases, non-manufacturing companies add in expenses related to the sale of inventory. Some of those expenses could include shipping costs and trade tariffs.

Returns and allowances are usually subtracted from the value of beginning inventory on a cost of goods sold statement. Included in returns and allowances are trade and volume discounts, in addition to refunds due to damaged or lost merchandise. The cost of goods available for sale reflects the value of beginning inventory plus purchases, minus returns, allowances, and direct expenses. For a non-manufacturing company, the last step is to subtract ending inventory to arrive at costs of goods sold.

It is important to note that a company may use either the first-in first-out (FIFO) or last-in first-out (LIFO) inventory method. With the FIFO method, a company calculates inventory costs by assuming that the oldest goods are sold before new purchases. The LIFO method assumes the opposite.

On the cost of goods sold statement for a manufacturing company, the first line represents the value of beginning direct materials. Purchases are added and returns and allowances are subtracted to arrive at materials available for use. The amount of direct materials at the end of the period is subtracted from materials available for use to arrive at the amount of direct materials a company has used.

Direct labor and factory overhead are included on a statement for a manufacturing company. These are the costs associated with producing the final product. Some of those costs could include depreciation on a factory, payroll taxes and utilities. Direct materials consumed, direct labor and factory overhead are added together to get the total manufacturing cost.

The value of work in process inventory at the beginning of the period is added to the total manufacturing cost. Ending work in process inventory for the period is then subtracted. This figure is referred to as the cost of goods manufactured. Finished goods inventory at the beginning of the period is added and then the value of finished goods inventory at the end of the period is subtracted to arrive at cost of goods sold.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Helen Akers
By Helen Akers
Helen Akers, a talented writer with a passion for making a difference, brings a unique perspective to her work. With a background in creative writing, she crafts compelling stories and content to inspire and challenge readers, showcasing her commitment to qualitative impact and service to others.

Editors' Picks

Discussion Comments
Helen Akers
Helen Akers
Helen Akers, a talented writer with a passion for making a difference, brings a unique perspective to her work. With a...
Learn more
Share
https://www.wisegeek.net/what-is-included-on-a-cost-of-goods-sold-statement.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.