What is the cost of sales in business?
The cost of sales in business is an important metric to understand. It’s essentially the amount spent by a company on activities directly related to generating revenue from products or services it sells. This includes but is not limited to spending on advertising, marketing, and sales personnel salaries. To calculate the cost of sales for a certain period, subtract the opening balance for inventory at the start of that period from its closing balance at the end of that period, then add all cash expenses related to making sales during that same timeframe.
For example, if you opened your business with $50K worth of inventory and closed with $60K worth at the end of Q2; meanwhile you had spent $20K on various activities such as advertising and hiring new sales staff during this time frame, your cost-of-sales would be equal to ($60k – $50k) + $20k = $30K. Keeping track of these figures can help businesses better understand where they should potentially invest their resources in the future in order to maximize their profits.
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