Cost Of Goods WEEK 7
Cost of Goods Author: James Scott Farrell Class XACC/290 Principles of Accounting I Instructor: Jeanette Butler
.
Analyzing the methods used to figure out/calculate cost of goods sold is a somewhat simple process but extremely valuable. When calculating cost of goods sold we have to remember to include any expense incurred to not only purchase the goods but also to receive the goods as well. According to reporting and analyzing inventory (2013) we add the beginning of the period Inventory amount + any purchases made through the period- the ending inventory amount. June 1st inventory 100,000 purchase inventory in June 300,000 - ending inventory in June 50,000 = 350,000 (cost of inventory). Here are some examples of costs that may include process shipping, equipment rentals, storage, and even maintenance costs of equipment used. However, we do not include items such as administrative office rent, lighting, etc. because they do not directly affect our ability to produce and/or sell this inventory. Lastly, we do not include shipping costs to our customers because this cost falls under sales. The education portal.com
(2011) discusses the parts of following this proper calculation because it allows our balance sheets to be correct showing whether or not the company has made a profit at the end of a period. For example, even if a company sells a large part of its inventory but the cost of doing it is greater than the value in goods sold then the company must report a loss for that month. In business accounting is our lifeblood when ensuring that our decisions make sense for a profitable future.
Citations,
.
Analyzing the methods used to figure out/calculate cost of goods sold is a somewhat simple process but extremely valuable. When calculating cost of goods sold we have to remember to include any expense incurred to not only purchase the goods but also to receive the goods as well. According to reporting and analyzing inventory (2013) we add the beginning of the period Inventory amount + any purchases made through the period- the ending inventory amount. June 1st inventory 100,000 purchase inventory in June 300,000 - ending inventory in June 50,000 = 350,000 (cost of inventory). Here are some examples of costs that may include process shipping, equipment rentals, storage, and even maintenance costs of equipment used. However, we do not include items such as administrative office rent, lighting, etc. because they do not directly affect our ability to produce and/or sell this inventory. Lastly, we do not include shipping costs to our customers because this cost falls under sales. The education portal.com
(2011) discusses the parts of following this proper calculation because it allows our balance sheets to be correct showing whether or not the company has made a profit at the end of a period. For example, even if a company sells a large part of its inventory but the cost of doing it is greater than the value in goods sold then the company must report a loss for that month. In business accounting is our lifeblood when ensuring that our decisions make sense for a profitable future.
Citations,
Citations: http://education-portal.com/academy/lesson/cost-of-goods-sold-on-an-income-statement-definition-formula-quiz.html Reporting and analyzing inventory, Chapter 6, Page 286.