What is goods available for sale

Again, we will not account for the cost of promotion and the cost of inventory at the end as we are calculating the total cost attributable to the salable product in hand, not the cost of the product sold. Also, the cost of freight inward is a part of production cost as it is the transportation cost of bringing the material to the factory place, hence it is a part of overhead expenses.

Cost of Goods Available for Sale is the total production expense of the final output available for sale. It accounts for the cost of inventory in hand at the beginning of the period and excludes the cost of selling and distribution and the cost of inventory left at the end of the period.

Here we discuss its formula along with step by step calculations and examples. You can learn more about from the following accounting articles —. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Free Accounting Course. In addition to the purchases made, one must also take into account the shipping costs as well as freight charges incurred in the purchase of a new inventory.

Likewise, the cost of goods available for sale formula is used to calculate the total value of goods sold in the long run. Similarly, the outcome of the cost of goods available for sale helps in the calculation of profit generated. If you make a mistake in the calculation of the cost of goods available for sale, the likelihood of the error affecting the cost of goods sold is usually high. Likewise, the error can go on to affect the total amount of profit generated as well as the income tax return.

Retailers are not the only ones that keep track of the cost of goods available for sale. Manufacturers also maintain an inventory system that tracks the number of goods produced and ready for sale to retailers or customers in some cases.

However, the calculation carried out by manufacturers is slightly different. In this case, their calculation only takes into account the beginning inventory as well as the number of goods produced along the way.

Also, the calculation must also take into account the cost of manufacturing the new products. To get the COGS, calculate the ending inventory and other sales-related direct expenses and subtract them from the Cost of Goods available.

Your financial statement and your tax return both require the record of your Cost of Goods Sold. If you get the calculations wrong, it either overestimates or underestimates your taxable income. If you overpay tax, you reduce your business profit, and if you underpay, you might attract sanctions from the IRS. Also, knowing what exactly it costs to make your goods ready for sale helps you decide the perfect product pricing. Whatever affects your pricing or tax affects your profit and whatever affects your profit deserves full attention.

And of course, the Cost of Goods available for sale is one of those indices. So, you need to be sure to get this important figure very correctly to better inform your business decisions.