The Cost of Goods Sold: Controversial Aspects of Definition and Accounting

Abstract

The accounting terminology was enriched in the concept of "cost of goods sold " as a result of the introduction of The National accounting regulations (standards) 9 "Inventories". The legal entities that conduct the wholesale and retail trade monthly determine and write off the cost of goods sold.  The standard correspondence of accounts for the write-off operations of goods that were disposed of as a result of sale approved by the Ministry of Finance of Ukraine. The example of calculating and recording the "cost" of goods sold in the accounts presented in The National accounting regulations (standards) 9 "Inventories" is controversial. The concept of "cost" is not peculiar to the sphere of purchase and sale, in which there is no process of manufacturing of the trade item. In the article the economic essence of the concept of "cost of goods sold" was found out; the legal procedure for summarizing accounting information on subaccount 902 "Cost of Goods Sold"  established by the Ministry of Finance of Ukraine was considered; the method of the initial cost of goods sold formation on this subaccount was substantiated. The content analysis and such methods as comparative legal, argumentation, deduction and induction were used to study the issue raised in the article. It was noted that given the trade and technological process of wholesale and retail trade entities, it is incorrect to use the concept of "cost of goods sold". It was proved that in trade enterprises we could only talk about the initial cost of such goods, in restaurant establishments - about the initial cost of purchased sold goods and the initial cost of raw materials and purchased semi-finished products used for the preparation of their own sold products. It was stated and argued that there are methodological errors in the algorithm for calculation of the cost of goods sold, enshrined in clause 22 of The National accounting regulations (standards) 9 "Inventories", and in the example of its application presented in the appendix to this accounting standard. It was proposed the procedure for operations of writing off the sales value of sold goods by financially responsible persons, and the formation of the initial cost of such goods in the debit of subaccount 902. The comments and suggestions to The National accounting regulations (standards) 9 are aimed at the elimination of contradictions in it and clarification of economic concepts. The recommended method of summarizing of accounting information on subaccount 902 "Cost of Goods Sold " specific to this subaccount was documented.