Accounting and Finance for Lawyers
"COGS" is an abbreviation of "cost of goods sold."
A purchase decreases Cash and increases Inventory by the purchase price.
A purchase still immediately decreases Cash and increases a Purchases account by the purchase price.
A sale increases Cash and Sales (Revenue) by the sale price.
Then, on a fixed date, the Inventory is reassessed, and the cost of goods sold during the period is calculated by adding the beginning Inventory and the Purchases and subtracting the ending Inventory. (It's the consumed inventory.)
The purchase price for COGS has various ways of determination:
The specific identification method looks at the actual cost of purchasing/producing the exact good sold.
There are three ways of assuming cost flows:
FIFO stands for "first in, first out." The goods purchased the longest ago are assumed to be sold first.
LIFO stands for "last in, first out." The last goods purchased are assumed to be sold first.
The third possible assumption averages the costs.