COGS (Cost of Goods Sold)
COGS is the direct cost of the products you sold during a period: what you paid for the units plus what it cost to get them sellable, including inbound freight, duties and prep. Under accrual accounting, COGS is recognized when the unit sells, not when you bought the inventory. That timing rule is what makes ecommerce margins readable, and it's the number most often wrong in seller books.
The common mistake is expensing inventory when you buy it. Do that and a $80,000 October stock-up makes October look like a disaster and December look like a miracle, when in reality your margin was steady the whole quarter. Buyers, lenders and the IRS all expect COGS matched to sales, and a set of books that can't do it fails diligence fast.
Concrete version: you sell 5,000 units in a month at $30 each, $150,000 in revenue. Each unit carries a landed cost of $11.40, so COGS is $57,000 and gross margin is 62%. If instead you expensed a $95,000 purchase order that month, your P&L would show a 37% margin and you'd draw exactly the wrong conclusions about pricing and ad spend.
We walk through the full calculation, with the accrual mechanics, in our ecommerce COGS formula guide, and true landed-cost COGS is built into every monthly bookkeeping engagement.
Where this shows up in our work
This isn’t textbook material for us; it’s the day-to-day of keeping seller books right. See how we handle it in practice:
Monthly Ecommerce Bookkeeping→