---
layout: default_v3
language: default
permalink: /glossary/cost-of-goods-sold.html
i18n_link: cost-of-goods-sold.html
updated: 2026-05-26
#--- article key-values ---#
collection: default_glossary
t_keyword: Cost of Goods Sold
category: C
tags: 
type: glossary
page_id: 1561
hreflang_id: 1561

date_published: 2026-02-20
date_modified: 2026-05-26
#--- javascript schema ---#
javascript_schema:
- script: jquery_3_2_0_min
- script: bootstrap_min
- script: article_infinite_scroll
- script: article_mix_infinitescroll
- script: article_mix
- script: article_mix_faq
- script: article_mix_toc
#--- section schema ---#
section_schema:
- section: nav-main_menu
- section: glossary_body_v2
- section: footer
#--- page key-values ---#
meta_tags:
  t_meta_title: What Is Cost of Goods Sold (COGS)- Formula & Guide
  t_meta_description: Learn what COGS means, how to calculate it, the basic formula, and how it impacts gross profit, income statements, and inventory valuation methods.
  t_meta_abstract:
  i_meta_image: 
article_body:
  json-ld_article:
    v_date_published: 2026-02-20
    v_date_modified: 2026-05-26
  author:
    p_author_id: 203
    t_author: Priyanka Bhadani
    p_author_url: priyanka-bhadani.html
    i_author: 203.png
    t_author_description: Jin is a content coordinator and SEO strategist for the Hubworks marketing team. When she's not busy writing and conducting research, she enjoys reading, binging Netflix, and exploring the outdoors with her rescue dog.
    p_author_facebook: //www.facebook.com/HubWorksApp
    p_author_twitter: https://twitter.com/HubworksApp
    p_author_linkedin: 
    p_author_instagram: 
  content:
    heading:
      t_title: What is Cost of Goods Sold (COGS)?
      t_description: The cost of goods sold or COGS refers to direct costs that lead to the creation of a good or product that a company sells.
      image:
        i_image: credit-card-processing-101-how-it-works-best-options-1597884200-6489.png
        t_image_description: Credit Card Processing
        v_image_attribution: //pixabay.com/photos/money-card-business-credit-card-256319/
        v_image_license: Creative Commons Zero
      v_video:
      t_text: <p>The cost of goods sold or COGS refers to direct costs that lead to the creation of a good or product that a company sells. Direct costs include the financial means it takes to manufacture the product, raw materials, and labor costs. The simplest COGS definition is the combination of costs required to produce a good. Indirect costs, such as distribution, are left out of the cost of goods sold. </p><h2>The basic COGS formula</h2><p>Cost of Good Sold = (Initial Inventory + Additional Costs) – Ending Inventory </p><p>To calculate COGS, add to the cost of the initial inventory, additional material plus labor costs. From that, the value of inventory to be sold is deducted. </p><h2>The Significance of COGS, Impact on Financial Statements </h2><p>COGS is critical for analyzing a firm’s financial position and prospects of making profits. This is a look at its impact on the various financial statements. </p><strong>Income statement-</strong> COGS is a line item on the income statement, which directly affects the computation of gross profit. Gross profit is the difference between revenue (sales) and COGS. When gross revenue is subtracted from sales, the balance of COGS shows gross profit, which can reflect the level of profitability, either high or low. <strong>Balance sheet-</strong> COGS indirectly impacts the balance sheet through its effect on ending inventory. First-In-First-Out (FIFO), Last-In-First-Out (LIFO), or <a href="https://plumpos.com/glossary/average-check.html">average cost</a> method is the inventory valuation method that influences the COGS calculation and, thereby, the profit reported. 
---