# How to Calculate the Cost of Sales

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The cost of sales, also referred to as the cost of goods sold, is a measure of how much it costs a company to sell its products. The cost of sales is also a necessary step when a business is trying to determine the amount of gross profit made in a given period. Not every company calculates cost of sales the same way. For example, trading businesses often use inventory figures to calculate the cost of sales, whereas a service business calculates the cost of sales by looking at the amount of money that goes into providing a service.

## Calculating the Cost of Sales

The most straightforward way to calculate the cost of sales is to look at the inventory for any given period. The equation is as follows: Opening Inventory plus Inventory Purchases minus Closing Inventory. For example, if you began a quarter with \$800 in inventory stock and purchased an additional \$1,200, that would be a total of \$2,000 in inventory stock for the quarter. If you had \$700 worth of inventory stock at the end of the quarter, the cost of sales for the period would be \$1,300. In other words, \$800 + \$1,200 - \$700 = \$1,300.

## Calculating Profit

The cost of sales for a period can be used to calculate the amount of gross profit a business makes. Gross profit is the amount of revenue taken in minus the cost of sales. For example, if you calculated your cost of sales at \$1,300 and took in \$1,700 in revenue, your gross profit would be \$400, or \$1,700 minus \$1,300.

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