Bookkeeping

Cost of goods sold

Cost of goods sold is the direct cost of the products a business sold during the period. It includes beginning inventory, purchases, freight and direct labor, less ending inventory.

Reviewed November 3, 2026

Why it matters

Cost of goods sold reduces gross profit and the tax on sales. An inventory error changes both the profit and the balance sheet.

Example

A retailer starts with $20,000 of inventory, buys $80,000 and ends with $25,000. Cost of goods sold is $75,000 before adjustments.

Related terms

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Sources

Checked November 3, 2026. Public pages and tax rules change; confirm them before relying on them.

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