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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.



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Cathy Fisher

Common Cents Bookkeeping and Tax Preparation

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

E: cathy@commoncentsqbo.com

P: 828-595-2835

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