cost of goods sold definition

Cost of goods sold is usually the largest expense on the income statement of a company selling products or goods. Cost of Goods Sold is a general ledger account under the perpetual inventory system.

Under the periodic inventory system there will not be an account entitled Cost of Goods Sold. Instead, the cost of goods sold is computed as follows: cost of beginning inventory + cost of goods purchased (net of any returns or allowances) + freight-in – cost of ending inventory.

This account balance or this calculated amount will be matched with the sales amount on the income statement.

To learn more, see Explanation of Inventory and Cost of Goods Sold.