Final answer:
The cost of goods sold at the end of the year is the cost of inventory sold during the year, which is labelled as option 3. This figure is used to calculate gross profit on an income statement and is determined by subtracting ending inventory from the total of beginning inventory and purchases made during the year.
Step-by-step explanation:
The cost of goods sold (COGS) at the end of the year represents the cost of inventory sold during the year. Therefore, among the provided options, the correct answer is 3) the cost of inventory sold during the year.
The calculation of COGS is typically a part of a business's income statement and involves a specific formula: Beginning Inventory + Purchases During the Period - Ending Inventory = Cost of Goods Sold. The beginning inventory is the value of all the products, goods, or materials in stock at the start of the year, while purchases during the period include all additional inventory bought. The ending inventory is the cost of the goods that have not been sold by the end of the period. To arrive at the cost of goods sold, you subtract the ending inventory from the sum of beginning inventory and purchases.
Tracking the COGS is essential for businesses as it helps in determining the gross profit which is calculated by subtracting COGS from the net sales. Essentially, COGS reflects how much it costs a company to produce or acquire the goods that were sold to customers within a specific accounting period.