What is Included In Cost of Goods Sold (COGS)

Cost of Goods Sold or Cost of Sales is the direct cost required to produce and sell a product to end customers. For Manufacturing Concerns, COGS includes all the direct expenses excluding indirect expenses that are not related to the cost of production and selling the products to end customers while for trading concerns, who sold finished goods to customers, it is the sum of opening inventory and inventory purchases minus closing inventory.

Mathematically we can say that:

Cost of Goods Sold = Opening Inventory + Inventory Purchases - Closing Inventory

Cost of Sales is shown on Income Statement or Trading Account as a direct expense and it is deducted from net Sales in order to find out Gross Profit or Gross Margin during the accounting period.