What is COGS (Cost of Goods Sold)?
Cost of goods sold is the purchase cost of the items a business actually sold in a period, which is subtracted from sales to find gross profit.
Updated
Meaning
English
Cost of goods sold is the purchase cost of the items a business actually sold in a period, which is subtracted from sales to find gross profit.
Roman Urdu
COGS kisi muddat me bikne wale saman ki khareed ki qeemat hai, jo sale me se nikal kar gross profit nikalta hai.
Also called cost of sales, cost of goods sold, COS.
Example
In October a shop sold goods for 900,000 rupees. Those exact items had cost it 720,000 rupees. COGS is 720,000 and gross profit is 180,000, regardless of how much stock was bought in October.
How it works
A common mistake is to treat purchases as cost: "I bought 800,000 of stock this month and sold 900,000, so I made 100,000". Purchases build stock; only what is sold becomes COGS. The classic formula is opening stock plus purchases minus closing stock.
In a POS the easier way is to save the cost on each bill line at the moment of sale, then add those up. Cost should include freight and other landed costs, otherwise profit looks better than it is. Damage, expiry and theft are usually shown separately as stock written off, so the owner can see them.
In Nafaa
Nafaa saves the cost on every bill line when the sale is made, at landed cost from purchases, and the profit and P&L reports use those figures, with stock written off shown as its own line.
Related terms
- Gross Profit
Gross profit is sales minus the cost of the goods sold, before rent, salaries, bills and other expenses are taken off.
- Landed Cost
Landed cost is the full cost of getting goods into your shop: the purchase price plus freight, loading, duties, taxes that cannot be claimed back, and other charges, less any discount.
- Stock Valuation
Stock valuation is the money value of the inventory a business holds on a date, usually counted at cost.
- Profit and Loss Statement (P&L)
A profit and loss statement is a report of sales, costs and expenses over a period that shows whether the business made a profit or a loss.