Dictionary of Accounting Terms: cost of sales
cost of sales
price of buying or making an item that is sold; also calledcost of goods sold. The difference between sales and cost of sales is gross profit. For a retail business, the cost of sale is the purchase price of the item. For a manufactured good, the cost of sale includes direct material, direct laborand factory overheadassociated with producing it. An example would be the cost to General Motors of making a car. An illustrative example of a gross profit calculation for a retail business follows:
| Sales | $100 | |
| Less:Cost of Sales | ||
| Beginning inventory | $ 30 | |
| Add: Purchases | 80 | |
| Cost of goods available | $110 | |
| Less: Ending inventory | 40 | |
| Cost of sales | 70 | |
| Gross profit | $ 30 |
