# Cost of goods sold

EMERGE uses a FIFO (First In First Out)  approach to calculate your stock cost. As the definition of a complete order varies across different users, it is important to determine what is considered as a sale in terms of cost of goods sold value which will impact the outcome in your Sales / Inventory report.

EMERGE offers a list of filters which aids you to determine your COGS value:

• Closed Orders (Selected by default)
• Fully paid orders (Selected by default)
• Fully delivered orders (Selected by default)
• Partially paid orders
• Partially paid Delivered orders

With the given filters, you will have more control over your report results. For instance, if you consider partially paid orders or partially delivered orders as sales to be calculated in the cost of goods sold, you can include these filters to produce the desired output in your report.

Below is a basic example of FIFO:

Product: t-shirt

Purchase from the beginning of time:

03/01/16: Purchased & Receive 50 Qty t-shirt @ \$10 each

25/01/16: Purchased & Receive 50 Qty t-shirt @ \$11 each

Sales

26/01/16 → Sold 60 t-shirts @17.90 each

The logic of FIFO works by ‘exiting’ the stocks that have been purchased first, therefore when 60 t-shirts are sold, we shall take:

50 Qty from the purchase made on 03/01/16 and

10 Qty from the purchase made on 25/01/16 which makes up to 60 Qty.

To calculate the COGS:

(50 Qty X \$10) + (10 Qty X \$11) =

\$500 + \$110 = \$610

To calculate the Ending Inventory:

Ending inventory(EI) refers to the remaining stocks from your total purchase, to calculate EI, we take the remaining 40 t-shirts from 25/01/16 and multiply by its purchase cost:

40 Qty X \$11 = \$440

https://en.wikipedia.org/wiki/FIFO_and_LIFO_accounting