Cost of Goods Sold is part of your Inventory account. If you do NOT carry an inventory, use 0 for beginning and ending inventory amounts. The full amount of your purchases, materials, and supplies will go to Cost of Goods Sold. See image attached for example of materials expense in COGS.
If you DO keep an inventory, you enter your beginning and ending inventory counts as well. Here is how COGS is calculated:
Cost of Goods Sold = Beginning of Year Inventory + Purchase Costs During the Year - End of Year Inventory.
You then use Cost of Goods Sold as your "costs" over the year. To take an example, suppose you had $5,000 in merchandise at the beginning of 2016. Your purchased products worth $18,000 over the year, and you have $4,000 in unsold merchandise at the end of the year. Your cost of goods sold is $5,000 + $18,000 - $4,000 or $19,000. If you started the year with no inventory in this example, your cost of goods sold is $14,000, and you carry over the unsold merchandise to the following year.
[Edited 04/10/18 15:23]
