Cost of Goods Sold (COGS) is an accounting term used to refer to the total cost associated with producing and selling goods. It measures the expenses for all the resources that went into creating a product or service, including raw materials, labor, overhead, and other related costs. This figure is important to know because it helps business owners understand exactly how much it costs them to produce their products or services, which in turn allows them to price their offerings accordingly. Understanding the Cost of Goods Sold equation can also provide insights into a company’s overall financial health. The equation is as follows: COGS = Beginning Inventory + Purchases – Ending Inventory.