What Is Cost of Goods Sold?
Cost of Goods Sold is what it actually cost your business to have the stock available to sell — the foundation every profit and margin number in your business is built on.
Direct answer
Cost of Goods Sold (COGS) is what it actually cost your business to have the stock available to sell — the price you paid your supplier, plus anything directly tied to getting that stock ready to sell (like delivery). It does not include rent, staff wages, or other running costs.
"Cost of sales" is the equivalent term used in international accounting standards — see the IFRS Foundation's Glossary for how accounting terms are formally defined.
Why it's calculated this way
You don't need to track the cost of every individual item sold if you know what stock you started the month with, what you bought during the month, and what's left at the end. What's "missing" from that total is what was sold — and its cost.
A shop starts the month with ₵12,000 of stock, buys ₵14,000 more during the month, and ends the month with ₵12,000 of stock still on the shelf.
| Opening Inventory | ₵12,000 |
| + Purchases | ₵14,000 |
| − Closing Inventory | ₵12,000 |
| COGS | ₵14,000 |
Common mistakes
Why this matters beyond the formula
COGS is the number every other figure in this cluster depends on. Get it wrong, and your gross profit, gross margin, and eventually your net profit are all wrong in the same direction.