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Calculating Cost of Goods Sold on the Income Statement

Throughout Accounting 10 the income statements that you were use to seeing were fairly

basic and looked similar to this.

There was not much to talk about except for the revenue and expenses. The revenue very

rarely dealt with goods as it was a service based business that you usually did the account for.

Now, in Accounting 20 you will have a much more complex statement with more detail as you

have to allocate for the Cost of Goods Sold section in the income statement. In this section

you will include information about your beginning inventory, purchases, total cost of

merchandise that you have available for sale, current inventory and total merchandise

available for sale. After you have included that portion you will go onto your expenses and thencompute your net income or loss. The example on the next page shows you how you will have

to complete the income statement for a merchandising company.

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Calculating the Cost of Goods Sold Section

The cost of goods sold can be calculated using any of the inventory costing methods. In order

to calculate the Cost of Goods Sold Section you will use the following formula.

Beginning Inventory + Purchase for Fiscal Period

Ending Inventory = Cost of Goods Sold

1. Identify the inventory you have on hand at the beginning of the fiscal period.2. Add your purchases for the fiscal period.3. Total all of the merchandise that you have available for sale.4. Subtract the inventory value on hand at the end of the fiscal period.

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For example: Joshs Juice store had a beginning inventory of 35 000.00 as of January 1st, 2013.

His purchases were 100 000.00 for the year. The inventory he has on hand at the end of the

fiscal period is 5 000.00. Calculate the cost of goods sold.

35000.00 + 100 000.00 -5000.00 = 130 000.00

Exercises

1. Complete the chart by filling in the following figures.

Year 1 Year 2 Year 3

Beginning Inventory 100 Units ____ Units ____ Units

Merchandise Purchased ____ Units 900 Units ____ Units

Goods Available for Sale 800 Units ____ Units ____ Units

Merchandise Sold ____ Units 1000 Units 800 Units

Ending Inventory 300 Units ____ Units 50 Units

b. If the units cost $5.00 each throughout year three, work out the cost of goods sold section.

2. For each of the following, calculate the cost of goods sold.

Beginning Inventory Purchases Ending Inventory COGS

32 000 74 250 33 500

85 600 410 360 88 300

65 550 110 357 60 548

33 800 82 640 33 500

48 500 150 650 50 300

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3. Given below are some accounts and their balances. Using these accounts calculate the costs

of goods sold figure. Ending inventory is 15600.

Accounts Balances

Bank 1 500

A/R 22 450Merchandise Inventory 14 500

Supplies 1 300

Automobile 18 000

Equipment 22 000

Accounts Payable 4 532

T. Lao Capital 77 558

T. Lao Drawings 12 000

Sales 82 600

Purchases 41 300

Advertising 1 100Car Expense 5 500

Rent Expense 9 000

Utilities Expense 2 150

Wages Expense 13 890

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4. Given below is a simple trial balance and ending inventory figure for London Retailers after a

fiscal period of one month.

Ending inventory is $25 350.00, answer the following questions.

a. Give the beginning inventory figure.

b. Give the selling price of the goods sold.

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c. Calculate the cost of good sold.

d. Calculate the gross profit

.

e. Calculate to total operating expenses

f. Calculate the net income.

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