Cost of sales

Meaning

Cost of sales (تكلفة المبيعات), or cost of goods sold, is the direct cost of what was sold: for a trader, the purchase cost of the goods plus freight and duty to bring them in; for a manufacturer, materials, production labour and factory overheads; for a service firm, the salaries of the people who deliver the service. It is deducted from revenue to give gross profit. Selling, administrative and finance costs are not in it; they come below gross profit.

For a business holding stock, cost of sales is opening inventory plus purchases minus closing inventory, which is why the year-end count sets the year's profit. Inventory costing, weighted average or FIFO, decides which cost leaves the shelf with each sale. Input VAT on purchases is not a cost when it is reclaimed.

Also called: cost of goods sold · COGS · direct costs · تكلفة المبيعات

Example

Al Noor opened the year with 70,000.00 of stock, bought 436,000.00 of goods including freight, and counted 96,000.00 at year end. Cost of sales is 70,000 plus 436,000 minus 96,000, or 410,000.00, against revenue of 860,000.00: a gross margin of 52 percent.