Cost of Goods Sold is the largest single expense in a retail organisation operating in a competitive environment. Under the periodic system, it is a calculation rather than an account that is constantly updated. Your book does not use an account for COGS at all, but we will in this lecture. Consider the following example. He tries not to eat too many himself.
COGS is simply a calculation.
The above method shows the calculation more clearly. Using the method above, the COGS account exists to facilitate the calculation of COGS at the end of the period. The preparation of the financial statements of a retailing firm follows the same basic process as that of a service firm. The main difference is in the formatting of the Profit and Loss Statement. You will also note that we have added more detail to the Operating Expenses section of the statement.