Cost of goods sold

The direct cost of the goods a company actually sold during the period, as opposed to everything it bought or made. The distinction is what inventory accounting exists to handle.

Arithmetically it's opening inventory plus purchases minus closing inventory. A trader that started the year with ₹900 crore of stock, bought ₹5,200 crore and ended with ₹1,100 crore consumed ₹5,000 crore.

Indian statements often don't present a single line called cost of goods sold. They show cost of materials consumed as one line and purchases of stock-in-trade as another. Changes in inventories of finished goods and work in progress get a third line. Adding those three gives the equivalent figure.

Watch the closing inventory number. It's the single easiest lever on reported gross profit, because every rupee left in stock is a rupee kept out of cost.

How that closing figure is valued matters too, and the method is disclosed. Weighted average cost and first-in-first-out give different answers whenever input prices are moving, and the gap widens with inflation. Rising prices make first-in-first-out charge the older and cheaper stock to cost and leave the newer and dearer stock on the balance sheet. That reports higher profit and higher inventory than weighted average would. Neither is wrong. Comparing two competitors using different methods without noting it produces a margin difference that exists only on paper.