How to calculate the Cost of Goods Sold (COGS) is one of the most often asked questions I get as an accounting professional. So here’s a general explanation, equation, and free downloadable calculator. I hope it helps.
If you take your books to a CPA at tax time, you will be asked to provide the Inventory Beginning and Ending balances and the total inventory purchases for the year. Well, that is because the CPA is trying to calculate your COGS.
The hardest part of the COGS equation is coming up with the figures for inventory and purchases. I can help you find those totals through Coaching, but for this quick tip, let’s assume you have the amounts available.
The equation is: COGS = Beginning Inventory + Purchases – Ending Inventory
*Beginning Inventory is the total inventory cost on day one of the accounting year
*Ending Inventory is the total inventory cost on the last day of the accounting year
*Purchases is the total of all inventory bought between Beginning and Ending totals