COGS (Cost of Goods Sold)
Also known as: cost of goods sold
The direct cost of the products a business actually sold during a period.
COGS (Cost of Goods Sold) is the direct cost of the inventory a business sold during a given period. For a product business it is essentially what you paid for the goods that left as sales, and it is subtracted from revenue to calculate gross profit.
COGS is calculated as opening inventory plus purchases minus closing inventory. Getting it right depends on accurate stock counts and accurate cost data for each item.
Because COGS flows straight into gross margin, small inventory-costing errors can distort how profitable a business looks. This is one reason accurate inventory records matter beyond the warehouse.
Put it into practice
Related terms
- Cycle CountCounting a small subset of inventory on a regular rotating schedule instead of one big annual stocktake.
- Dead StockInventory that is not selling and is unlikely to sell, tying up cash and space.
- EOQ (Economic Order Quantity)The order size that minimises the combined cost of ordering and holding inventory.
Run it in one system
VNDLY tracks stock, orders, and suppliers together so terms like this stop being theory and start being automatic.