What is cost of goods sold (COGS)?

COGS is what the things you sold cost you. For a retailer that is the purchase cost of the goods that left the shelf. For a restaurant it is the food and drink used to make what was sold. It does not include rent, wages for front-of-house staff or marketing; those are operating expenses. Sales minus COGS gives gross profit.

The standard formula is opening inventory plus purchases during the period, minus closing inventory. Freight and duty paid to bring stock in are usually included in purchases. The formula works because anything you had or bought that is no longer on the shelf at the end was either sold, wasted or lost, and all three are part of the cost of doing business.

Two things change the figure. The first is the count: an inaccurate closing stock count makes COGS wrong by the same amount. The second is the valuation method. When purchase prices change, FIFO, LIFO and average cost each assign a different cost to the units sold, so the same sales can show different COGS and different profit.

SeroPOS tracks the inputs as you trade: purchases at cost, stock adjustments, transfers and sales, with FIFO or LIFO set in Business Settings. The back office Profit / Loss report shows opening and closing stock by purchase price, purchases, adjustments and gross profit for any date range, and the Stock Report shows the closing stock value. With the QuickBooks Desktop connection, products sync with their cost accounts.