Financial Terms / cost of goods sold report

# Understanding COGS Reports

COGS, or cost of goods sold, is an important report to understand the cost of sales.

## Formula

``COGS = Beginning Inventory + Purchases - Ending Inventory``

## How do I calculate the cost of goods sold report?

```It is important to calculate Cost of Goods Sold (COGS) in order to accurately determine your company's gross profit and gross margin. COGS is an important metric that appears on financial statements and is calculated by subtracting the cost of materials and labor used to create the goods from the company's revenues. This formula can be used to calculate COGS:

`COGS = Beginning Inventory + Purchases - Ending Inventory`

Using spreadsheet software such as Sourcetable can help you easily keep track of your costs and revenues and calculate COGS with greater accuracy.```

## What is Cost of Goods Sold (COGS)?

`Cost of Goods Sold (COGS) is the cost of producing goods sold by a company. It includes the cost of materials and labor used to create the good, but excludes indirect expenses.`

## How does COGS affect net income?

`COGS increases net income by decreasing the company's margins.`

## Key Points

How do I calculate cost of goods sold report?
`COGS = Beginning Inventory + Purchases - Ending Inventory`
COGS Measures Financial Performance
Cost of goods sold (COGS) is a measure of financial performance that is used to calculate a company's gross profit and gross margin. It is calculated by subtracting COGS from a company's revenues.
COGS Includes the Cost of Materials and Labor Used to Produce the Good
COGS includes the cost of materials and labor used to produce goods or services, such as the cost of raw materials, manufacturing labor, and shipping costs. This cost is separate from the operating expenses associated with running a business.
COGS Excludes Indirect Expenses
COGS excludes indirect expenses such as administrative and marketing costs, as these costs are not directly related to the production of goods or services.
COGS Increases Lower Margins
COGS is used to calculate gross profit and gross margin, and it increases lower margins. This means that a company's gross margin will be lower when their COGS is higher, and vice versa.
COGS is Different from Operating Expenses
COGS includes expenses not directly related to the production of goods or services and is different from operating expenses, which are expenses associated with running a business such as rent and utilities.
COGS is Used to Calculate Net Income
COGS is used to calculate net income, which is the amount of money a company has left after subtracting all of its expenses from its revenues. By understanding how COGS affects net income, a company can make better decisions about how to manage its costs.

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