Cost of sales
Also called: Cost of goods sold
What is cost of sales?
Cost of sales is what the goods sold in the year cost the business.
It is opening inventory, plus purchases, less closing inventory.
Purchases returns are taken off the purchases, and carriage inwards is added. Carriage outwards is not part of cost of sales.
Example
Opening inventory is £4,000.00, purchases are £21,000.00 and closing inventory is £5,000.00. Cost of sales is £20,000.00.
Why it matters
Revenue less cost of sales is gross profit. Any change in cost of sales changes gross profit and net profit by the same amount.
Practise it
Practise it nowHow to work out gross profit and net profit
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].