Is Cost of Goods Sold on Balance Sheet?
Cost of goods sold is the carrying amount of goods that the company sold during the accounting period. It includes direct material, direct labor, and direct overhead which directly contributes to the product. Cost of goods sold present in the income statement, it will be deducted from revenue to get the gross profit.
We cannot find the cost of goods sold on the balance sheet as it is the income statement line items. Balance sheet shows the balance of goods not yet sold, which is known as inventory. It is the asset account. It will reclass to cost of goods sold when it is sold.
Cost of Goods Sold Example
Company ABC purchases inventory 1,000 units at $5 per unit on 01 Jan 202X. At the end of January 202X, all inventory remains the same, there is no sale made during the month. During February 202X, 500 units were sold for $ 7 per unit. Please show how inventory reclasses to the cost of goods sold.
On 31 January 202X, the balance should be the balance of inventory $ 5,000 (1,000 units x $5 per unit). As there is no sale, so the cost of goods sold during the month. We assume there is no other transactions.
| Balance Sheet
As at 31 January 202X |
|
| Cash | XXXX |
| Inventory | 5,000 |
| Accounts Receivable | XXXX |
On February balance sheet, inventory balance decreases from $ 5,000 to $ 2,500 due to the sale of 500 units. On income statement, there will be revenue of $ 3,500 (500 units x $7 per unit). Cost of goods sold equal to 2,500 (500 units x $ 5 per unit), it the balance movement from inventory in balance sheet to cost goods sold in the income statement.
| Balance Sheet
As at 28 February 202X |
|
| Cash | XXXX |
| Inventory | 5,000 |
| Accounts Receivable | XXXX |
| Income Statement
For the month February 202X |
|
| Revenue | 3,500 |
| COGS | (2,500) |
| Profit Margin | 2,500 |
