Cost of merchandise sold definition

What is the Cost of Merchandise Sold?

The cost of merchandise sold is the cost of goods that have been sold by a wholesaler or retailer. These entities do not manufacture their own goods, instead buying the goods from third parties and selling them to their customers. If wholesalers and retailers were to instead manufacture their own goods, this term would change to the cost of goods sold.

How to Calculate the Cost of Merchandise Sold

The calculation of the cost of merchandise sold is to add the beginning inventory balance to merchandise purchases during the period, and subtract out the ending inventory balance. Thus, the calculation is as follows:

Beginning merchandise inventory + Merchandise purchases - Ending merchandise inventory
= Cost of merchandise sold

There are several factors that can influence this cost. If there are purchase discounts, allowances, or freight costs, these items are added to the merchandise purchases amount.

Example of the Cost of Merchandise Sold

As an example of the cost of merchandise sold, Batteries International (purveyor of marine batteries) has beginning battery inventory of $200,000, purchases an additional $300,000 of batteries during the reporting period, and has ending battery inventory of $50,000. This results in the following calculation of the cost of merchandise sold:

$200,000 Beginning merchandise inventory + $300,000 Merchandise purchases - $50,000 Ending merchandise inventory

= $450,000 Cost of Merchandise Sold

Related AccountingTools Course

Accounting for Merchandising Operations

FAQs

How does the Cost of Merchandise Sold Differ From the Cost of Goods Sold?

The cost of merchandise sold (COMS) and the cost of goods sold (COGS) are similar concepts, but COMS is typically used by retailers and wholesalers who purchase finished goods for resale, while COGS is broader and includes manufacturing costs for companies that produce their own goods. COGS accounts for raw materials, direct labor, and manufacturing overhead, whereas COMS generally reflects only the purchase price, freight-in, and handling of merchandise. In practice, COMS is a subset of COGS, applied specifically to businesses that do not engage in production.

Related Article

Merchandise Inventory