Cost of Goods Sold Formula Accounting is the calculation used to determine the cost of products or services a business has sold during a period of time. This formula helps businesses accurately assess their profits and losses. It involves subtracting all relevant expenses, such as production costs, marketing expenses, shipping costs, and labor costs, from their total revenue. This provides an accurate amount of what a business earned from its sales activities. To further understand this concept, let’s look at an example:
Company A manufactures and sells luxury teacups. In one month, the company spent $10,000 on materials, $2,000 on labor, and $20,000 on shipping and other related expenses related to its sales. Company A received a total of $25,000 in revenues from selling these products. The cost of goods sold formula accounting would then be calculated by subtracting all of the above expenses from the total revenue, equaling $13,000 – which is the net profit that resulted from the sale of these products.