Cost of Goods Sold Vs. Inventory Assets

In the world of e-commerce, inventory is an essential asset for distributors, manufacturers, and retailers alike.
a warehouse full of goods
In the world of e-commerce, inventory is an essential asset for distributors, manufacturers, and retailers alike. That’s why companies record and report on the inventory for deep insights to help the companies flourish.

When you sell a good from the inventory, you report the cost of the good on the income statement of the company. Then you subtract it from the inventory. This is called as cost of goods sold.  
So, what do you need to know about them in regards to inventory management? Read more to find out.

What Is the Cost of Goods Sold?

The cost of goods sold (COGS) is a company’s direct cost of producing an item to be sold. This means that it consists of the cost of production, labor, and materials. In addition, it can also include indirect costs like costs for distribution and sale.

The cost of goods sold is vital for a company as it’s an important aspect of their financial statements. That’s because it’s removed from the revenues the company generates to find out the gross profit generated. It’s the reason why you record costs of goods in the income statements. This is how a company measures its profitability so investors and analysts can know the bottom line.

What Is Inventory?

Inventory is a company’s asset, just like how cash is an asset. It refers to all products for sale like raw materials, in-process goods, as well as finished goods. These are called inventory in stock because they are the goods and products that are at hand to be sold.

It’s also vital for a company as the turnover represents a primary source of the revenue generated. This way, it lets the company know the earnings of the shareholders.

Inventory is a current asset that can go up and down, just like how cash does, depending on the sales of a given period. It’s also the middleman between manufacturing and order fulfillment.

How Are COGS and Inventory Related?

Inventory is the most essential part of your business because it’s the main thing that generates your income. Inventory items are recorded at the cost it took to produce them and get them ready for sale. That’s called costs of goods sold. It’s a part of the value of a business’s inventory.

Costs of goods and inventory have a very dependent relationship both recorded and in practice. That’s because a business can’t have inventory without the cost that enabled them to make an inventory. Similarly, companies can tell the inventory’s performance via the costs of the goods sold.
an inventory warehouse
If you’re looking for a cloud based inventory management system for your business, AltheaSuite is just what you need.

At AltheaSuite, we offer ERP systems for inventory management, cloud-based inventory management systems, POS software, e-commerce inventory management software, inventory management software, and more.

Contact us today for more information.

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