What on the income statement is considered as the cost of goods sold and the inventory? How do you compute?

Thanks

Income Statement is also known as a Profit & Loss Statement (P&L).

One line is Cost of Good sold --- you also have beginning inventory and ending inventory.

To compute, you would take NET SALES (which gives you your income) and subtract COST OF GOODS SOLD, and then you get the Gross Profit (or loss).

Good question:

See first of all you need to understand is this that there are two types of costs which you see in the profit & loss A/c.

These costs are -1. direct costs
And -2. indirect costs.

So after bifurcating between the two costs you easily able to arrive at the figure of costs of goods sols as well as for your inventory.

Now if you understand this , concentrate on direct costs ONLY.

Now what are direct costs. -- its simple- are those costs which are DIRECTLY ATTRIBUTABLE in making the sales of the product.

Examples: purchase costs of goods sold, warehousing costs of goods sold, WAGES paid to labour which can be DIRECTLY Linked with the goods upon which they are working.ETC.

Please remember you always debit the total purchase cost of goods purchsed but you have to take only that portion of costs of goods which you have sold.
Which cannot be traced through P&LA/C. if all goods purchased are not sold.

Thus no reference of indirect costs. And similarly you can derive for the inventory.

Keep in mind -- for costs of goods -only direct costs consisdered.

Have knowledge, go great

sajalarora, you are off on some tangent not related to the question. This person is probably just now learning that cost of goods sold exist, which is a long, long way from dealing with direct and indirect costs.

Not to mention that it isn't true that only direct costs count as cost of goods sold.

onelove23, what's on the income statement that is cost of goods sold is exactly that: cost of goods sold. That's what the account is called. And inventory isn't on an income statement. It's an asset, so it's a balance sheet account.

Compute from what information? If you're doing perpetual, there's nothing to compute. If you're doing periodic, then:

Beginning Inventory
+ Cost of Purchases
=Goods available for sale
-Ending Inventory
=Cost of goods sold

You're not being very specific, so if there's something different you need, you need to state exactly what it is, and what information you have available to you.

RESPECTED morgain300

Good sir/madam upon your comment.

I think this site helps the student to easily solve there problems by interacting.

I referred your profile you have a good experience and a good senior to explain the things.

You critisied my all answers I liked.
Good sir, we are here on this planet to critise only to others.

But I want to say something to you is this I don't think so that I explained anything wrong.

What you say that balance sheet a/c-- there is no word actually like this -- so why you used.

Regarding cost of purchases--what I explained all expenses like -purchase cost, any wages paid etc. my dear is included in the cost of purchases only.

And not only just purchase cost.
And one must need to understand difference between direct & indirect cost.

I doesn't know you did any practical or not if you do accounting in this way the company will loose and go into losses.

I am not criticizing you -- I think now you love to answer the questions -and wanted no other person should come forward .

OK sir thanks - I onwards never open the site and asnwer the question.
I really wanted to help the NEEDY students.
If I goes somewhere wrong I am really says sorry for that.

Ah, I see you've posted this here in addition to sending it to my PM.

So now that I see what thread you've put this on, I'm going to address three issues.

First, I didn't know this post was on this thread since I read the PM first. It's possible that this one is not homework. However, betcha 95% chance it is. Also, you also answered some other things incorrectly that were absolutely 100% positively homework. So everything I said about that issue in the PM still counts.

Second:

what you say that balance sheet a/c-- there is no word actually like this -- so why you used.
I said that the inventory account was a balance sheet account, and not an income statement account. And you're saying there is no word actually like this. WHAT WORD? What are you talking about?


Regarding cost of purchases--what I explained all expenses like -purchase cost, any wages paid etc. my dear is included in the cost of purchases only.
This actually is not quite what you said. And this doesn't make much sense either.

As for the rest of it, I've already addressed it in the PM, so despite the fact that I'm not fond of someone telling me in public that the companies I work for must be having losses cause I don't know what the heck I'm doing, I'm kind of done with this. Not to mention that I'm a financial accountant. We don't really cause incomes OR losses in companies -- we merely report it.

What is cost of goods sold statement & why its is prepared