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