rchases = Cost of goods available for sale – Ending inventory = Cost of goods sold (A) How does the “Cost of Goods Sold” section of the income statement differ between merchandising and manufacturing companies and how is it calculated for manufacturing companies? (B) Inventory on the balance sheet is also different for a manufacturing company than for a retailer. What are the three types of inventory on a manufacturer’s balance sheet? After naming all three, select one and discuss it.
You may recall from Principles I that “Cost of goods sold” for a retailer is figured as shown below:
Beginning inventory
+ Purchases
= Cost of goods available for sale
– Ending inventory
= Cost of goods sold
(A) How does the “Cost of Goods Sold” section of the income statement differ between merchandising and manufacturing companies and how is it calculated for manufacturing companies?
(B) Inventory on the
Cost of goods sold is the cost incurred in producing or purchasing the goods sold in the current financial year. It is computed by adding the purchases and the direct expenses incurred to the opening stock. Then the sum calculated is reduced by the closing stock.
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