What Are Cost of Goods Sold?

Let’s Learn with Lemonade! Alright, friends! We’ve talked about the money we make from selling stuff, like lemonade. Now, let’s chat about something called Cost of Goods Sold. It may sound fancy, but it’s not too tricky. It’s like if you’re making lemonade to sell at your stand, you need to buy lemons, sugar, and cups, right? Well, all the money you spend to buy these things is what we call the Cost of Goods Sold, or COGS for short.

Why COGS Is Like a Shopping List

Think of COGS as the shopping list for your lemonade stand. You know you can’t make lemonade without lemons! So everything on that list – lemons, sugar, water, cups – costs money. The total of this shopping list is your COGS.

COGS Tells Us How Much We Spend

When we know our COGS, we know how much we’re spending to make our lemonade. This is super important because we have to spend money to make money! If our lemons are really expensive one week, it’s going to cost us more to make our lemonade.

COGS Helps Us Price Our Lemonade

Knowing our COGS helps us figure out how much to charge for each cup of lemonade. We want to make sure we charge more than our COGS, so we have some money left over to, let’s say, buy a new toy or save for something big!

What If COGS Goes Up?

If the price of lemons goes up because there aren’t many around, our COGS goes up too. That means we might have to charge more for our lemonade or find ways to make our lemonade without using so many lemons.

Keeping Track of Our Lemonade Stand

It’s a good idea to write down how much we’re spending on our shopping list every time we make lemonade. That way, we can look back and see how much we’ve spent and think about whether we need to change anything to make our lemonade stand better. So, Cost of Goods Sold is all the money we use to make our lemonade. We keep track of it to make sure we can keep making lemonade and maybe even have some money left over to spend on fun things or save for later!

Gita Faust

About the Author

Gita Faust has over 30 years of accounting experience in the real estate and property management industry, Gita Faust is more than just a real estate investor; she is also popular for her work as an accountant, consultant, mentor, speaker, QuickBooks Top ProAdvisor, QuickBooks Solution Provider, member of Intuit’s Trainer/Writer Network, and, of course, author. Gita is well-known for her exemplary leadership and advisory skills. In fact, she even helped pioneer the adaptation of QuickBooks to suit the needs of professionals in real estate and property management. To share her knowledge she has written a series of courses titled Simplified Accounting Solution, which provides step-by-step guidance for those working with QuickBooks.

Leave A Comment

Leave a Reply

Your email address will not be published. Required fields are marked *