# Understanding Unadjusted Cost Of Goods Sold

## Introduction

If you own a business, you know the importance of calculating your cost of goods sold (COGS). It is a crucial component in determining your profitability and tax liability. However, there are different ways to calculate COGS, and one of them is by using the unadjusted method. In this article, we will discuss what unadjusted cost of goods sold is and how to calculate it.

## What is Unadjusted Cost of Goods Sold?

Unadjusted cost of goods sold is calculated by subtracting the cost of goods sold from the beginning inventory without making any adjustments for purchases, returns, or other adjustments. This method assumes that all inventory items have been sold, and there are no remaining items at the end of the period.

### Why Use Unadjusted Cost of Goods Sold?

There are several reasons why businesses may use the unadjusted cost of goods sold method. It is a simple and easy method that does not require a lot of record-keeping or calculations. It is also useful for businesses that have a small amount of inventory and do not have significant fluctuations in purchases or returns.

### How to Calculate Unadjusted Cost of Goods Sold

To calculate unadjusted cost of goods sold, you need to know the beginning inventory and the cost of goods sold. The formula is as follows: Unadjusted COGS = Beginning Inventory – Cost of Goods Sold For example, if your beginning inventory was \$10,000, and your cost of goods sold was \$8,000, your unadjusted cost of goods sold would be \$2,000.

## Limitations of Unadjusted Cost of Goods Sold

While unadjusted cost of goods sold is a simple and easy method, it has its limitations. It does not take into account any adjustments for purchases, returns, or other factors that may affect inventory levels. This can lead to inaccurate calculations and misrepresentations of profitability.

### When to Use Adjusted Cost of Goods Sold

Businesses that have a large amount of inventory or significant fluctuations in purchases, returns, or other adjustments should use the adjusted cost of goods sold method. This method takes into account all changes in inventory levels and provides a more accurate representation of profitability.

## Conclusion

In conclusion, unadjusted cost of goods sold is a simple and easy method to calculate COGS. It is useful for businesses that have a small amount of inventory and do not have significant fluctuations in purchases or returns. However, it has its limitations and may lead to inaccurate calculations. Businesses with a large amount of inventory or significant fluctuations in purchases, returns, or other adjustments should use the adjusted cost of goods sold method.