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Answer Posted / viswanatha reddy
The cost of goods sold is the cost of the merchandise that a
retailer, distributor, or manufacturer has sold.
The cost of goods sold is reported on the income statement
and can be considered as an expense of the accounting
period. By matching the cost of the goods sold with the
revenues from the goods sold, the matching principle of
accounting is achieved.
The sales revenues minus the cost of goods sold is gross profit.
Cost of goods sold is calculated in one of two ways. One way
is to adjust the cost of the goods purchased or manufactured
by the change in inventory of finished goods. For example,
if 1,000 units were purchased or manufactured but inventory
increased by 100 units then the cost of 900 units will be
the cost of goods sold. If 1,000 units were purchased but
the inventory decreased by 100 units then the cost of 1,100
units will be the cost of goods sold.
The second way to calculate the cost of goods sold is to use
the following costs: beginning inventory + the cost of goods
purchased or manufactured = cost of goods available - ending
inventory.
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