COGS (Cost of Goods Sold)
Definition
The direct cost of the products you actually sold in a period, including product cost, inbound freight, duties and other landed costs. It is not what you spent on inventory; it is what left the shelf.
Want a deeper explanation?
Formula
Beginning Inventory + Purchases − Ending Inventory = COGSCOGS is the cost side of every sale you made. For an inventory business it is usually the single biggest number on the P&L, and it drives gross margin, pricing and almost every decision about what to reorder.
The most common mistake we see is booking inventory purchases straight to expense. That makes a heavy buying month look like a loss and a light buying month look like a windfall, when neither is true. Watch for: a gross margin that swings wildly month to month, which usually means COGS is following your purchases instead of your sales.
Example
You start the month with $80,000 of inventory, buy $40,000 and end with $70,000. Your COGS is $50,000, even though you paid suppliers $40,000.