Cost of Goods Sold Calculator

Opening inventory plus net purchases less closing inventory. Net purchases means what you bought plus freight in, less returns and discounts taken. Freight in belongs in the cost because it is part of what the goods cost you; freight out, delivering to the customer, is a selling expense and sits below the gross profit line. Putting it in the wrong place moves the gross margin without changing the bottom line, which is the sort of error that survives a casual review.

Which units you treat as sold. FIFO assumes the oldest stock goes first, so the newest and usually dearest units stay on the balance sheet. LIFO assumes the newest goes first, so cost of goods sold carries the recent higher prices and profit comes out lower. On a typical rising-cost period LIFO produces the highest cost of goods sold, weighted average sits in the middle, and FIFO the lowest. When costs fall the ordering reverses, which is the same rule rather than an exception.

In the United States, yes, under GAAP. It is prohibited under IFRS, so it is not available in the UK, EU, Australia, India or most of the world. Its appeal is tax: in a period of rising prices it reports lower profit and so a lower tax bill. US rules attach a condition, the LIFO conformity requirement, which is that a company using it for tax must use it in its published accounts too, so the lower tax comes with lower reported earnings rather than for free.

When the cost is struck. Periodic works it out once at the end of the period; perpetual recalculates at every sale. Under FIFO the two always agree, because the oldest layer is the oldest layer whenever you look. Under LIFO and weighted average they routinely disagree, because last in at the moment of a mid-period sale is a different batch from last in at the year end, and a running average is struck before later purchases have pulled it around. Neither answer is wrong, and an exam paper or an auditor will have said which one they meant.

Cost of goods available for sale less cost of goods sold, which is why the two are always shown together here. Every method accounts for the same total cost: whatever does not go to the income statement stays on the balance sheet. If a calculator's cost of goods sold and closing inventory do not add back to what was available, one of them is wrong.

For a reseller, no: it is the cost of the goods. For a manufacturer, yes, along with manufacturing overhead, because the cost of the finished item includes making it. That is the difference between the retail formula and cost of goods manufactured, and it is why both labour and overhead have their own fields here rather than being folded into purchases.