2. Cost of Goods Sold Statement
Prepared by – Mohammad Azam
B. Com, MBA (Finance), MS (Management Sciences)
Lecturer of Accounting – Kardan Institute of Higher Education Kabul, Afghanistan.

3. What is Cost?
Cost is a sacrifice of resource to achieve some future benefits.
Expense is known as expired cost.
Benefits of which have been derived is known as expense.
Expense always results in negative cash flow.

4. The Income Statement

5. Income Statement
The first statement prepared is the Income Statement.

6. Income Statement The first statement prepared is the Income Statement.
The Income Statement reports a business’ performance for the period.

7. Income Statement
A simple format for an income statement is:

8. Income Statement A simple format for an income statement is:
Revenues – Expenses = Net Income

9. Income Statement
Revenues are earned for the sale of goods or services.
Note that revenues occur when the sale is made.
The payment may or may not have been received.

10. Income Statement
Revenues are earned for the sale of goods or services.
Note that revenues occur when the sale is made.
The payment may or may not have been received.
Examples of revenues include sales,
service revenue and interest revenue.

11. Income Statement
Expenses are incurred when a business receives goods and services. Like revenues, payment may or may not have been made.

12. Income Statement
Expenses are incurred when a business receives goods and services. Like revenues, payment may or may not have been made.
Examples of expenses include salaries expense,
utility expense and interest expense.

13. Income Statement
Most businesses require more information from their businesses than a simple income statement can provide. Therefore, they use a multi-step income statement format.
A format for a multi-step income statement is:

14. Income Statement Sales revenue - Cost of goods sold Gross profit
Operating expenses
Income from operations
+/- Non-operating items
Income before taxes
Income taxes
Net income

15. Income Statement
Cost of goods sold represents the expense a business incurred to buy or make a product for resale. or
CGS is the costs that go into making the products that a company sells.

16. Income Statement
Cost of goods sold represents the expense a business incurred to buy or make a product for resale.
Example - a book store buys a book for $25 and then sells it for $32. The cost of goods sold is $25.

17. Income Statement
Operating expenses are the usual expenses incurred in operating a business.

18. Income Statement
Operating expenses are the usual expenses incurred in operating a business.
Accounts such as salaries expense, utility expense, and depreciation expenses are all shown in this section.

19. Income Statement
Non-operating items are revenue, expenses & gains that do not relate to the company’s primary operations.

20. Income Statement
Non-operating items are revenue, expenses & gains that do not relate to the company’s primary operations.
Accounts include interest expense, rent revenue and gains of the sale of equipment and investments.

21. Income Statement
Income taxes are computed by multiplying Income before taxes by the income tax rate.

22. Income Statement
Income taxes are computed by multiplying Income before taxes by the income tax rate.
Example – Income before taxes is $50,000. The income tax rate is 30%. Income taxes = $50,000 * 30% = $15,000.

23. Income Statement Sales 100,000 - Cost of Goods Sold -58,000
Gross Margin
42,000
- Operating Expenses
-27,000
Income from Operations
15,000
- Non-operating Items
-5,000
Income before Taxes
10,000
- Income Taxes
-3,000
Net Income
7,000

24. Income Statement Operating expenses include: Utility expense 8,000
Sales
100,000
- Cost of Goods Sold
-58,000
Gross Margin
42,000
- Operating Expenses
-27,000
Income from Operations
15,000
- Non-operating Items
-5,000
Income before Taxes
10,000
- Income Taxes
-3,000
Net Income
7,000
Operating expenses include:
Utility expense 8,000
Salaries expense 16,000
Supplies expense 3,000

25. Income Statement Non-operating items include: Interest expense 5,000
Sales
100,000
- Cost of Goods Sold
-58,000
Gross Margin
42,000
- Operating Expenses
-27,000
Income from Operations
15,000
- Non-operating Items
-5,000
Income before Taxes
10,000
- Income Taxes
-3,000
Net Income
7,000
Non-operating items include:
Interest expense 5,000

26. Income Statement Income taxes = Income before taxes * Income tax rate
Sales
100,000
- Cost of Goods Sold
-58,000
Gross Margin
42,000
- Operating Expenses
-27,000
Income from Operations
15,000
- Non-operating Items
-5,000
Income before Taxes
10,000
- Income Taxes
-3,000
Net Income
7,000
Income taxes = Income before taxes * Income tax rate
10,000 * 30% = 3,000

27. Cost of Goods Sold Statement
Step Two
Cost of Goods Sold Statement

28. a)Direct Materials & Labour:
Direct Materials-Opening (Jan 1, 2010)
+ Purchases
Cost of D. Materials available for Use
D. Materials-Ending (Dec 31, 2010)
D. Materials used
D. Manufacturing Labour

29. b) Indirect Manufacturing Cost /Factory Overhead:
Indirect Manufacturing Labour
Supplies
Heat, Light & Power
Depreciation-Plant Building
Depreciation-Plant Equipment
Miscellaneous
Manufacturing costs incurred during the period

30. c) Work in Process: Manufacturing costs incurred during the period…
+ Beginning Work-in-process Inventory (Jan 1, 2010)
Cost of Goods available for manufacturing.
- Ending Work-in-process Inventory (Dec 31, 2010)
Cost of Goods manufactured.

31. d) Finished Goods: Cost of Goods manufactured.
+ Finished Goods Beginning (Jan 1, 2010)
Cost of Goods available for sale..
- Finished Goods Ending (Dec 31, 2010)
Cost of Goods Sold…

32. Luqman & Brothers Corporation Cost of Goods Sold Statement For the period of December 31, 2010
Direct Materials-Opening (Jan 1, 2010) US$ 123,000
Add: Purchases ,000
Cost of D. Materials available for Use ,000
Less: D. Materials-Ending (Dec 31, 2010) ,000
D. Materials used US$ 200,000
D. Manufacturing Labour ,000
Factory Overhead:
Indirect Manufacturing Labour
Supplies ,000
Heat, Light & Power 12,000
Depreciation-Plant Building 5,000
Depreciation-Plant Equipment 3,500
Miscellaneous ,000 US$ 46,500
Manufacturing costs incurred during the period… ,500
Add: Beginning Work-in-process Inventory (Jan 1, 2010) ,500
Cost of Goods available for manufacturing… ,000
Less: Ending Work-in-process Inventory (Dec 31, 2010) ,000
Cost of Goods manufactured… ,000
Add: Finished Goods Beginning (Jan 1, 2010) ,000
Cost of Goods available for sale ,000
Less: Finished Goods Ending (Dec 31, 2010) ,000
Cost of Goods Sold… US$ 300,000

33. Exercise
Opening: (Jan 1, 2010): Direct Materials 12,000 Work in Process 11,000 Finished Goods 10,000 Purchases Returns 11,500 Purchases 22,500 Freight-In 400 Ending (Dec 31, 2010): Direct Materials 2,000 Work in Process 1,000 Finished Goods 900 Factory Overhead: Indirect Manufacturing Labour 1,500 Supplies 1,000 Electricity 2,000 Dep.-Plant Building 1,000 Dep.-Plant Equipment 350 Miscellaneous 100

34. The End