What Is the Relationship Between Inventory and Cost of Goods Sold?

Cost of sales refers to the production costs of the products sold or the labor costs of the labor services provided and the business costs of other sales. Including the main business cost and other business costs, of which the main business cost is the cost of the company's sales of commercial products, semi-finished products and the provision of industrial labor services; other business costs are the company's sales of materials, rental packaging, rental Costs incurred by businesses such as fixed assets.

Cost of sales

Cost of sales refers to the cost of production of the product sold or labor services provided

Cost of sales = production cost of inventory goods;

Product cost of sales refers to what the company sells

Carry-over of cost of goods sold

There are two ways to carry forward the cost of goods sold: carry over with sales and carry over regularly. The cost is carried forward at the same time as the product is sold with the carry-over with sales, and the regular carry-over is generally carried forward at the end of the month.

There are two ways to carry forward the cost of goods sold: decentralized and centralized. ^[2]

The decentralized carry-over method is a method of calculating the cost of goods sold one by one according to the inventory commodity account and registering the carry-over one by one. This method has a large calculation workload, but can provide detailed data on the cost of goods sold for each variety.

The centralized carry-over method is to calculate the ending balance amount by multiplying the ending balance amount of the inventory product detail account by the purchase unit price, and then summarize according to the major categories, and calculate the cost of goods sold on the commodity category account, and carry out the centralized carry-over. Then calculate and carry forward the sales cost of each product item by item. This approach simplifies the work, but does not provide the cost of sales for each item.

In addition, the calculation and carry-over of non-commodity sales of issued goods, including the issue of processed goods, shortage of goods, etc., are carried out as they occur. There are two methods for determining the calculated unit price: one is to carry forward the cost of goods sold on a daily basis, based on the unit price of the goods that are deposited on the day of the detailed account of the goods; the other is to carry forward the cost of goods sold on a regular basis, and to balance the goods at the beginning of the period Unit price calculation. ^[3]