Identify the accounting term highlighted :-The amount of goods bought by a business for resale or for use in production?

Question

Answer

Accounting Term: Cost of Goods Sold (COGS)

The cost of goods sold (COGS) is an accounting term that refers to the direct costs incurred in producing the goods sold by a business. It includes the cost of the materials used in creating the product, as well as the cost of labor and any other expenses directly related to the production of goods.

Calculation of COGS

The COGS is calculated by subtracting the beginning inventory from the cost of goods purchased or manufactured during the period and then adding the ending inventory. The formula for calculating COGS is as follows:

COGS = Beginning Inventory + Purchases or Manufacturing Costs - Ending Inventory

Example

For example, let's say a clothing store purchases $100,000 worth of merchandise from suppliers during the year and has a beginning inventory of $10,000. The store also has an ending inventory of $20,000. To calculate the cost of goods sold, we would use the following formula:

COGS = $10,000 + $100,000 - $20,000 = $90,000

This means that the store sold $90,000 worth of merchandise during the year, and the remaining $10,000 worth of merchandise was left unsold and added to the ending inventory for the next period.

Importance of COGS

COGS is an important metric for businesses because it directly impacts the company's profitability. By accurately calculating the cost of goods sold, businesses can determine their gross profit, which is the difference between their revenue and their COGS. This information is critical for making informed business decisions, such as pricing strategies, inventory management, and identifying areas for cost savings.

Overall, the cost of goods sold is a fundamental accounting concept that plays a crucial role in measuring a company's profitability and making informed business decisions.

Answer

Sale

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