COST OF GOODS SOLD
STATEMENT
Financial
Statements
Balance Sheet Income Statement
Cost of Goods Sold is one of
the basic component of
Income Statement (Profit &
Loss Account)
Cost of Goods Sold (CGS)
Cost of Goods Sold represents the
expense a business incurs to manufacture
or by a product for sale.
In Income Statement (P&L Account), CGS is
shown in one figure.
However, for internal uses, additional
information is necessary for future planning and
for evaluation of past.
Cost of Goods Sold (CGS)
The cost of goods sold section of any
manufacturing business can be divided into 5
distinct parts:
i. Direct Materials Section
ii. Direct Labor Section
iii. Factory Overhead (FOH)
iv. Work-in-process Inventories
v. Finished Goods Inventories
Cost of Goods Sold (CGS)
Direct Materials
i. Beginning/Opening Inventory
ii. Purchases (Net)
iii. Ending/Closing Inventory
Cost of Goods Sold (CGS)
Direct Labor
Cost of those employees whose work can be
identified directly with the product manufactured
No inventories involved
Cost of Goods Sold (CGS)
Factory Overhead (FOH)
All those costs that assist in an indirect manner in
the manufacturing of the product.
No inventories involved
Cost of Goods Sold (CGS)
Work in Process (WIP) Inventories
Cost in process at the beginning of accounting
period and costs still in process at the end of the
period.
Opening WIP Inventories
Closing WIP Inventories
Cost of Goods Sold (CGS)
Finished Goods Inventories
Opening Finished Goods Inventories
Closing Finished Goods Inventories
Thank You