A key aspect of business accounting is cost of goods sold. This formula makes this calculation simple to understand: Beginning Inventory + Inventory Purchases - End Inventory = Cost of Goods Sold.
Calculate the business' beginning inventory. Determine the inventory amount at the beginning of the month. This amount is also the ending balance for the previous month. For example, the beginning balance of $500 for Feb. 1 is usually the same $500 ending balance for Jan. 31.
Total the amount of inventory purchased throughout the month. If your business bought $100, $200, $350 and $250 in consecutive weeks, the total inventory purchased for the month would be $900.
Add the beginning inventory to the amount of inventory purchased in the month. Using the $500 from Step 1 and the $900 from Step 2, the sum would be $1,400.
Determine the ending inventory balance for the month. The ending inventory is the value of the inventory left at the end of the month after all sales have been recorded. If you end the month with $350 in inventory, this would be your ending inventory balance.
Subtract the ending inventory from the sum of the beginning inventory and inventory purchased during the month. In the example, subtract the $350 ending inventory balance from the $1,400. The balance, $1,050, is the cost of goods sold.