Everything You Need to Know About the Cost of Goods Sold

Dealing with your eCommerce's finances is undeniably complicated. But even with its complexities, it's crucial that you have your cost of goods under control to ensure financial order.

Having efficient and accurate inventory management proves to be one of the biggest reasons behind a successful eCommerce platform. This is because when you tie down too much of your capital on inventory or prioritise poor margin products, you impact your cash flow and ultimately drain it.

With that said, it's crucial to spotlight the cost of goods sold or COGS in any inventory-based business to ensure that all things stay afloat. Of course, to do this, you must work with a credible eCommerce accountant to ensure that all data remains accurate.

Why is Knowing Your Cost of Goods Sold Important?

Does your business sell products? If so, then your business manages inventory. If that's the case, then you must be fully aware of how you manage and calculate your cost of goods sold and how it can affect your business down the line.

When you calculate your cost of goods, you factor in every cost involved in selling your products. This will include distribution, manufacturing, and sales, which is why it can get pretty complicated to tackle, especially when you consider how much you produce in the market.

Why Does the Cost of Goods Sold and Inventory Work Hand-in-Hand?

Calculating the cost of goods sold will solely depend on the overall value of the inventory of your business. If your eCommerce business sells physical products, then your inventory is the items you sell.

In some cases, inventory could also be defined as items that have been purchased from a wholesaler. For other businesses, inventory is defined as products that your business manufactured. Regardless of what compromises your inventory, it is considered an essential business asset with a quantifiable value.

Ideally, you want to work with an eCommerce accountant and your operations team to calculate the cost of goods sold from the beginning of the financial year until the end of the financial year. With that said, you shouldn't wait to record the inventory cost until all is sold because it can cause irregularities in your statements and show a less reliable investment.

What Should I Know About Calculating Cost of Goods Sold?

  • The cost of goods sold is the largest expense of an inventory-based business;

  • Your COGS is connected to your taxable income. When you don't calculate your cost of goods correctly, it will result in multiple errors when calculating your taxable income;

  • You need to have accurate COGS calculations, so you present accurate profit margin numbers. When you don't have accurate data and profit margins numbers, it can cause difficulties in your inventory management and business operations;

  • Your cost of goods sold and profit margins affect the decision-making of your pricing, sales and marketing budget, order quantity, and more.

The Bottom Line: Work with an Experienced eCommerce Accountant to Get an Accurate Account of Your Cost of Goods Sold

There's no denying that the cost of goods sold holds a huge role in your business's operations. For your business to stay afloat, you must work with an eCommerce accountant to help calculate and factor in all necessary data to produce an accurate report on your COGS.

How Can We Help You?

Seeing as the cost of goods sold is an important financial report, you must work with a credible accounting firm to help you with this task.

The ECommerce Accountant provides eCommerce accountants and business advisors to help your brand flourish in the competitive eCommerce market. Call (07) 5504 1999, and start taking control of your business's finances today!

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