Cost of sales refers to the amount of money you spend manufacturing, holding and providing goods for your customers. A formula to calculate the cost of sales for a retailer would be the cost of merchandise in the beginning inventory plus the net cost of merchandise purchased minus the cost of merchandise in its ending inventory.
For example…
Say I had a fish n’ chips shop and had $1000 worth of fish (or inventory) in my store, then spent $500 buying some more fish that month and had $300 worth of fish left at the end of that month. My cost of sales for that month would be $1200. As such, my beginning inventory of $1000 plus purchases of $500 minus ending inventory of $300 equalled my cost of sales of $1200.
