Ten Easy Steps to Determine Cost of Goods Sold Under a Periodic System

Love Thy Pet, Inc.,

Cost of Goods Sold
For the Year Ended December 31, 2007

Cost of goods sold

Inventory, January 1 $ 50,000
Purchases $265,000
Less: Purchases returns and
Allowances $10,000
Purchases discounts 5,000 15,000
Net purchases 250,000
Add: Freight-in 10,000
Cost of goods purchased 260,000
Cost of goods available for sale 310,000
Inventory, December 31 45,000
Cost of goods sold $ 274,000

Always start with the name of the company, the title of the statement and the period for which
the statement is being prepared.

Step 1. On the first full line of the body of the statement place the title “Cost of goods sold.”
Step 2. On the far right column place the beginning inventory. The title for that line should read
“Inventory, January 1.” Don’t forget $ sign.
Step 3. In the middle column place the Purchases amount. The title for that line will be
“Purchases.” Don’t forget $ sign.
Step 4. In the far left hand column place the Purchases returns and allowances plus the Purchase
discounts. Each of these accounts will have a title on two separate lines. Add the
purchases returns and allowances plus the purchase discounts and place the results in the
middle column on the same line as the purchase discounts. Don’t forget $ sign.
Step 5. Subtract the total of purchases returns and allowances plus the purchases discounts from
the Purchases to get net purchases place the results in the middle column under the
purchases discounts. The title for this line will be “Net Purchases.”
Step 6. In the middle column under net purchases place the freight-in. The title for this line will
be “Add: Freight-in.”
Step 7. Add Freight-in to Net Purchases and place the results in the far right hand column. The
title for this line will be “Cost of goods purchased.”
Step 8. Add the beginning inventory plus the cost of goods purchased and place the results in the
far right column under the cost of goods purchased. The title for this line will be “Cost of
goods available for sale.”
Step 9. Place on the next line ending inventory. Place the amount in the far right column under
the cost of goods available for sale. The title for this line will be “Inventory, December
31.”
Step 10.Subtract the ending inventory from the cost of goods available for sale and place the
results in the far right column under the ending inventory. The title for this line will be
“Cost of goods sold.” Don’t forget $ sign and double underline.