GLOSSARY

The expense recognised for inventory or goods sold during a reporting period, based on the costs assigned to those goods.

COGS is deducted from revenue to calculate gross profit, so its measurement affects pricing, margin analysis, inventory decisions, forecasting, and financial reporting. Consistent classification is essential when comparing products or periods.

A manufacturer begins the month with £80,000 of finished goods, adds £240,000 of eligible production cost, and ends with £70,000 of inventory. Before other required adjustments, the reconciliation produces £250,000 of COGS for the goods sold.

Eligible costs and terminology vary by accounting framework and business model; service organisations may report cost of sales instead. COGS excludes many operating, selling, and administrative expenses. Inventory errors, write-downs, overhead allocation, and cost-formula choices can materially change reported gross margin.

For inventory businesses, COGS generally reflects the carrying amount of inventory sold. Inventory cost includes purchase, conversion, and other costs required to bring inventory to its present location and condition, subject to the applicable accounting framework and cost formula. A common reconciliation is opening inventory plus purchases or production costs minus closing inventory, adjusted as required.