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Cost of goods sold includes total cost of opening stock and purchase . If company has incurred some expenses on purchasing of goods then these expenses are also included in purchasing goods cost . If there is any closing stock , we can simply deduct from above total cost . After this , we can get the cost of goods sold . This amount is very important because without this , we can not calculate gross profit and net profit of business .

Formula for calculating cost of goods sold

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

1. In opening stock , we will include all items which are not sold in the end of previous year .
2. For calculating net purchase , we will deduct purchase return from total purchase .
3. Direct expense will add for finding the cost of goods sold . All expenses which are paid or payable for purchasing of goods are called direct expenses .
4. Closing stock will deduct for calculating cost of goods sold . In closing stock , we include all stock items which are not sold up to the end of the financial year . Cost of goods sold's other name is also merchandise cost because in commerce , it is very famous cost which is taught in basic accounting fundamentals .

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