Explain Cost of goods

Question

Explain Cost of goods and how they are used in estimating gross profit and net profit of the business?

Answer 1

Cost of goods sold comprises total cost of opening stock and purchase. When company has incurred certain expenses on purchasing of goods then such expenses are as well comprised in buying goods cost. When there is any closing stock, we can just subtract from above total cost. After this, we can acquire the cost of goods sold. This amount is very significant since devoid of this, we can’t estimate gross profit and net profit of the business.

Cost of goods sold = Opening stock + Net purchase + Direct expenses - closing stock