1. **Beginning Inventory**: Determine the value of your beginning inventory for the period. This is the value of the inventory you had on hand at the beginning of the accounting period.
2. **Purchases**: Calculate the total value of inventory purchases made during the period. Include the cost of any inventory purchased for resale or raw materials purchased for production.
3. **Ending Inventory**: Determine the value of your ending inventory for the period. This is the value of the inventory you have on hand at the end of the accounting period.
4. **Calculate Cost of Goods Available for Sale**: Add the beginning inventory value to the purchases made during the period to get the total cost of goods available for sale.
\[ \text{Cost of Goods Available for Sale} = \text{Beginning Inventory} + \text{Purchases} \]
5. **Calculate Cost of Goods Sold**:
- If you use the periodic inventory system: Subtract the ending inventory value from the cost of goods available for sale.
\[ \text{Cost of Goods Sold} = \text{Cost of Goods Available for Sale} - \text{Ending Inventory} \]
- If you use the perpetual inventory system: The cost of goods sold is recorded continuously as goods are sold, so you won't need to calculate it separately at the end of the period.
Once you've calculated the cost of goods sold, you can use this information for various financial analysis purposes, such as calculating gross profit margin or determining taxable income. Make sure to keep accurate records of your inventory transactions and consult with a professional accountant or financial advisor if you have any questions about calculating the cost of goods sold for your business.