Question

The correct equation (COGS model) that applies to the computation of cost of goods sold is

a. Beginning inventory - purchases + ending inventory = cost of goods sold.
b. Beginning inventory + purchases - ending inventory = cost of goods sold.
c. Beginning inventory + purchases + ending inventory = cost of goods sold.
d. None of the above.

Answer 1

Beginning inventory + purchases - ending inventory = cost of goods sold is the correct equation (COGS model) that applies to the computation of cost of goods sold. Option B.

Step-by-step explanation:

The correct equation (COGS model) that applies to the computation of the cost of goods sold is option B. Beginning inventory + purchases - ending inventory = cost of goods sold.

The equation is derived from the basic principle of accounting that the cost of goods sold is equal to the cost of inventory at the beginning of the accounting period

Plus purchases made during the period, minus the cost of inventory at the end of the period.

For example, let's say a business had a beginning inventory of $10,000, made purchases amounting to $5,000, and had an ending inventory of $8,000.

To calculate the cost of goods sold, you would use the equation: $10,000 + $5,000 - $8,000 = $7,000.

Hence, the right answer is option B.