cost of goods sold
/ kost uv goodz sold — abbreviated COGS, say 'kogz' /
Picture a phone-case shop. Each case it sells cost the shop something to buy from the factory before it could resell it. If a customer pays 25 for a case that the shop bought for 9, then 9 of that sale is simply the cost of the thing handed over. Add up that direct cost across everything sold in a period and you have the cost of goods sold — the price tag, to the seller, of the merchandise that actually left the shelves.
Precisely, cost of goods sold (COGS) is the direct cost of the products a company sold during the period: for a retailer, what it paid to buy that merchandise; for a manufacturer, the materials, direct labor, and factory costs that went into the units sold. The crucial word is 'sold' — only items that were actually sold count. Goods still sitting in the warehouse stay on the balance sheet as inventory, not as an expense yet. A simple way to compute it is: beginning inventory plus purchases minus ending inventory. If a shop started with 10,000 of stock, bought 50,000 more, and ended with 12,000, its COGS is 48,000.
COGS matters because it is subtracted from revenue to give gross profit, the very first measure of whether the core selling activity is even viable. It sits separately from rent, salaries, and marketing, which are operating expenses, because COGS rises and falls directly with how much is sold. One subtlety to watch: the dollar amount of COGS depends on the inventory cost-flow assumption (FIFO, LIFO, or weighted average) the company chooses, so two identical shops can report different COGS purely from that accounting choice.
A bookstore sells 500 books in a month that cost it 6 each to buy; its cost of goods sold for the month is 3,000, and only that 3,000 — not the cost of unsold copies still on the shelf — is subtracted from sales.
Only the cost of items actually sold becomes COGS; unsold stock stays as inventory.
The reported COGS figure depends on the inventory cost-flow method (FIFO, LIFO, weighted average), which need not match the physical order in which goods were actually shipped.