Cost of Goods Sold

The cost of goods sold is an adjustment to income. It is used when a business has an inventory or produces a product.  The cost of goods sold is the beginning inventory + purchases + labor + overhead + materials and supplies (used in the actual production or process) – ending inventory.

Beginning Inventory – This should be the same as last year’s ending inventory.

Purchases – Completed products or raw materials for manufacturing, merchandising, or mining; plus, the cost of shipping; minus the cost of items for personal use.

Cost of Labor – The cost of labor used in the actual production of the goods.

Materials and Supplies – The materials used in the actual production or processing of the goods or for the packaging for sale (e.g., boxes and bags).

Other Costs – A proportion of overhead expenses related to creating a product, freight-in, and containers and packages.

Ending Inventory – This is the physical counted inventory at the end of the tax year and is used as the beginning inventory for the next year’s return.


Cathy Fisher

Common Cents Bookkeeping and Tax Preparation

Serving Henderson, NC, Buncombe County, Polk County, Transylvania County


P: 828-595-2835

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