LESSON 5 COST OF SALES

OR COST OF GOODS SOLD

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT

JV LEGASPI
• The Cost of Sales or Cost of Goods Sold
represents the cost of merchandise inventory by the
business to its customers. This cost comprises the
company’s biggest expense is deducted from the
net sales to arrive at the gross profit or gross
margin.
Computation of Cost of Sales is as follows:

• Merchandise Inventory, Beginning Pxxx

• Add: Net Cost of Purchases
• Purchases Pxxx
• Less: Purchase Returns & Allowances Pxxx
• Purchase discount xxx xxx
• Net Purchases Pxxx
• Add: Freight-in xxx xxx
• Goods Available for Sale Pxxx
• Less: Merchandise Inventory, End xxx
• Cost of Sales Pxxx
ILLUSTRATION: Taken from the worksheet of Sweet
Potion Merchandising, the following is the Cost of Sales of
the Company.

• Merchandise Inventory, Beginning P80,000

• Add: Net Cost of Purchases
• Purchases P550,000
• Less: Purchase Returns & Allowances P92,000
• Purchase Discount 18,000 110,000
• Net Purchases P440,000
• Add: Freight-in 25,000 465,000
Goods Available for Sale P545,000
Less Merchandise Inventory, End 60,000
Cost of Sales P485,000
Note: PERFORMANCE TASK. Worksheet
No. 1

1. Refer to LESSON 4-1 PERFORMANCE TASK :

KATE COMPANY
2. Use the adjusted trial balance and
prepare the Cost of Sales