Technical definition
The inventory cost assigned to goods sold during the reporting period.
How it works
Inventory costs remain assets until sale. When revenue is recognized, the related inventory amount is transferred to expense. Under a periodic system, beginning inventory plus purchases minus ending inventory determines cost of goods sold.
Everyday example
Beginning inventory 8,000 plus purchases 27,000 minus ending inventory 9,500 gives cost of goods sold of $25,500.
Common pitfall
Cost of goods sold is based on inventory cost, not the sales price or total cash paid to suppliers during the period.