What Does Cost of Goods Sold Mean in Retail?

Point of Sale (POS) Glossary

Cost of Goods Sold refers to the acquisition price of a merchant’s stock. This includes freight, as transportation is necessary to get an item on a vendor’s shelf, including freight. However, things like employee and shipping to a customer are not part of this calculation. Cost of goods sold is sometimes abbreviated as COGS. When a point of sale system records a sale, the sale price minus the COGS is part of the calculation for determining profit.

There are various accounting methods for determining the COGS when the price of an item changes over time. One common technique is first-in, first-out, which for bookkeeping’s purposes means the cost for the oldest inventory items is recorded as being sold first. A POS system should track the acquisition date and prices paid for a specific inventory item for an accurate COGS calucation.