Which equation best represents cost of goods sold for a merchandising company?

• A. Beginning Inventory + Purchases - Ending Inventory = Gross Profit
• B. Ending Inventory - Beginning Inventory + Purchases = COGS
• C. Beginning Inventory + Purchases - Ending Inventory = COGS
• D. Purchases - Ending Inventory = COGS

Answer: (C)

Cost of goods sold for a merchandising company is the cost of the goods that were sold during the period. It is determined by taking what you had at the start (Beginning Inventory), adding what you purchased during the period (Purchases), and subtracting what you still have at the end (Ending Inventory). This gives Beginning Inventory + Purchases - Ending Inventory = COGS.

This makes sense because you start with inventory on hand, add new purchases to have goods available for sale, and then remove the ending inventory to reflect only what was actually sold.

The other forms don’t fit because they either label the result as Gross Profit, which is a separate figure, or they omit a key component (Beginning Inventory) or use incorrect signs, leading to an inaccurate measure of COGS.