What is the correct equation for COGS?

What is the correct equation for COGS?

• A. Opening Stock + purchases - Closing Stock
• B. Closing Stock - Opening Stock + Purchases
• C. Revenue - Gross Profit
• D. Opening Stock - Purchases - Closing Stock

Answer: (A)

When you calculate COGS, you’re tracing how inventory moves through the period. Start with what you had at the beginning (opening stock), add what you bought (purchases), and subtract what you still have at the end (closing stock). What’s left out of ending stock is what was actually sold, so COGS equals Opening stock plus Purchases minus Closing stock. For example, if opening stock is 100, purchases are 300, and closing stock is 150, COGS = 100 + 300 − 150 = 250. The other options don’t follow this flow of inventory. They don’t represent the amount of inventory that was sold during the period in the straightforward way that the stock-on-hand approach does, which is why the opening stock plus purchases minus closing stock is the correct form.

When you calculate COGS, you’re tracing how inventory moves through the period. Start with what you had at the beginning (opening stock), add what you bought (purchases), and subtract what you still have at the end (closing stock). What’s left out of ending stock is what was actually sold, so COGS equals Opening stock plus Purchases minus Closing stock.

For example, if opening stock is 100, purchases are 300, and closing stock is 150, COGS = 100 + 300 − 150 = 250.

The other options don’t follow this flow of inventory. They don’t represent the amount of inventory that was sold during the period in the straightforward way that the stock-on-hand approach does, which is why the opening stock plus purchases minus closing stock is the correct form.