The cost incurred in purchasing goods or services to sell them and generate revenue is called as the cost of goods sold. The account that is used track this cost is named as the Cost of Goods Sold account.
Formula: Cost of Goods Sold = Sales Revenue – Gross Profit
For example, a stationery shop purchases 1000 pens and sells 200 of them. Now, the cost of the 200 units of pen will be the cost of goods sold for the stationery shop.
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