Cost flow through inventory
What a business buys to sell moves through stages: raw materials, work in progress and finished goods. Its cost stays on the balance sheet until the sale, when it becomes the cost of goods sold.
Cost of goods sold = Opening inventory + Purchases − Closing inventory
Why it matters
A purchase is not yet a cost of sales. Only the part that was actually sold is charged against revenue, and what is left on the shelf remains an asset.
Where it appears in a CFO+ model
- In activities with ingredients, materials or goods among their cost lines.
- In the income statement as cost of sales, and in the balance sheet as inventory.
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Activities where it shows up
No figures are published: a definition and a formula only.