Calculating Cost of Goods Purchased

by Sabah Karimi; Updated September 26, 2017

The cost of goods purchased is a valuable calculation for retail businesses and companies that acquire large amounts of inventory on a regular basis. The COGP calculation can determine whether a company has spent more money acquiring goods and materials than it has on selling its goods and services. The information needed for this calculation is typically recorded in financial statements, such as the balance sheet and income statement. Here's how to calculate the cost of goods purchased.

Items you will need

  • Calculator
  • Balance sheet for current and previous year
  • Income statements for current and previous year
Step 1

Find the cost of sales amount on the balance sheet and income statement. This will serve as the starting point for calculating your total cost of goods purchased for the current period.

Step 2

Subtract the cost of goods purchased with cash in the previous year. This information can be found on the closing statements of your previous year.

Step 3

Add the cost of goods purchased with cash in the current year. This information can be found in the most recent closing statements in your accounting cycle.

Step 4

Determine if the cost of goods purchased was more than the cost of sales. If so, the business may have spent too much on acquiring goods than selling the goods for profit.

Step 5

Conduct the credit calculations. Subtract the cost of goods purchased from creditors in the previous year. This information can be found in the balance sheet of the previous year.

Step 6

Add the cost of goods acquired from creditors in the current year. This information can be found in the balance sheet and/or closing statements of the most recent accounting period.

Step 7

Calculate your total increase or decrease of costs to creditors. This will be the sum of the calculations in Step 5 and Step 6.

Step 8

Calculate your cash outflow. This is your cost of goods purchased total from Step 4, minus the amount in Step 7.

Tips

  • The cost of goods purchased is typically used in business accounting for large businesses and corporations.

Warnings

  • Verifying cash paid to suppliers and any goods purchased with credit is essential for obtaining an accurate total for your calculation.

About the Author

Sabah Karimi is a professional Web and print copywriter. She specializes in several niches including travel, fashion, beauty, health, fitness, lifestyle and small business. Karimi has an educational background in business administration and marketing from the University of Wisconsin-Platteville.