Defining Cost of Goods Purchased Formula (+Examples)

By Leah TranAugust 7, 20255 min read

Cost of goods purchased formula is:

Cost of Goods Purchased = Purchases + Freight-In + Other Costs – Purchase Returns and Allowances

It is the total amount spent on buying inventory during a specific period. It’s the direct cost a business pays to acquire inventory, including purchases, shipping, and other related expenses.

COGP matters because it’s the foundation for calculating your true profitability. COGP shows you the actual amount you’re spending to acquire inventory, including shipping, duties, and other direct costs—this gives a more accurate view of your real expenses.

In this guide, you’ll learn more about COGP: its definition, calculation, examples, and how it is used for your business.

Quick Recap

Cost of Goods Purchased (COGP) is the total amount spent on buying inventory during a specific period.
While they sound similar, COGP vs. COGS isn’t the same thing.
Cost of Goods Purchased (COGP) is used in accounting and profitability analysis. Without COGP tracked accurately, then Cost of Goods Sold (COGS), gross profit margin, gross profit, and net profit becomes unreliable.

What is the Cost of Goods Purchased?

Cost of Goods Purchased (COGP) is the total amount spent on buying inventory during a specific period. It’s the direct cost a business pays to acquire inventory, including purchases, shipping, and other related expenses.

While they sound similar, COGP vs. COGS isn’t the same thing. COGP tells you how much you spent on buying inventory—regardless of whether you’ve sold them yet. Meanwhile, Cost of Goods Sold (COGS) is the total direct cost of producing or purchasing the goods that a business has actually sold.

How to Calculate the Cost of Goods Purchased

In accounting terms, COGP formula is:

Cost of Goods Purchased = Purchases + Freight-In + Other Costs – Purchase Returns and Allowances

Let’s break it down:

Purchases: Total dollar amount spent on buying inventory
Freight-In: Shipping or transportation costs to bring the goods to your facility
Other Costs: Any added costs directly tied to acquiring the goods (like import taxes)
Returns and Allowances: Goods you sent back or got discounts on after purchase

Cost of Goods Purchased is a key part of calculating Cost of Goods Sold (COGS):

COGS = Beginning Inventory + Cost of Goods Purchased − Ending Inventory

Example of the Cost of Goods Purchased

Using the above formula, here's an example of calculating COGP step-by-step.

Let’s say your business bought inventory this quarter with the following details:

Total purchases: $60,000
Freight-in charges: $2,000
Import duty: $1,500
Purchase returns: $3,500

Here’s how it plays out:

COGP = $60,000 + $2,000 + $1,500 – $3,500 = $60,000

So, your cost of goods purchased this quarter would be $60,000. This means you paid $60,000 to stock up on items you plan to sell (or use in production).

Applications of the Cost of Goods Purchased

Cost of Goods Purchased (COGP) is a key part of profitability analysis.

Even though you don’t usually see “COGP” as a separate line on the PnL Statement, it still helps calculate important numbers that do appear there—especially COGS.

Once they calculate COGS, that number appears directly on the PnL statement, and helps determine your Gross Profit.

Even though COGP isn't shown, it's a critical input behind the scenes of other business performance metrics.

Why Cost of Goods Purchased Matters for a Business?

COGP matters because it’s the foundation for calculating your true profit and profitability.

COGP shows you the actual amount you’re spending to acquire inventory, including shipping, duties, and other direct costs—this gives a more accurate view of your real expenses.

If you don’t accurately track how much you spent to acquire your goods (COGP), then every number that comes after like Cost of Goods Sold (COGS), profit margin, gross profit, and net profit becomes unreliable.

In short, Cost of Goods Purchased (COGP) might not get as much attention as revenue or profit, but it plays a critical role in understanding a business’s financial health.

COGP is the start of true profit. It gives you a more accurate view of your real expenses—and with TrueProfit, you can track that effortlessly to get a clearer picture of your true profitability.

Cost of Goods Purchased Formula FAQs

How do you calculate the cost of goods purchased?

To calculate the cost of goods purchased, you add up all purchases of inventory during a specific period and adjust for any purchase returns, allowances, and discounts. Then, include any additional costs needed to bring the inventory to your business, such as shipping or handling fees.

What is the formula for purchase of goods?

The basic formula for the purchase of goods is:

Purchases = Net Purchases + Purchase Returns and Allowances + Purchase Discounts

This helps you track the total inventory bought before adjustments.

What is the formula for net cost of goods purchased?

The formula for net cost of goods purchased is:

Net Cost of Goods Purchased = Purchases + Freight-In – Purchase Returns – Purchase Allowances – Purchase Discounts

This gives you a clearer view of your real inventory costs.

How to calculate cost purchased?

To calculate the cost purchased, take the total purchase amount, subtract any discounts, returns, and allowances, and then add any freight-in or delivery costs related to getting the inventory to your location.

What is cost of goods purchased?

Cost of Goods Purchased (COGP) refers to the total amount a business spends to acquire inventory during a specific period.

What is the cost of goods purchased calculation?

The cost of goods purchased calculation adds up all the expenses directly related to buying inventory. The basic formula is:

Cost of Goods Purchased = Purchases + Freight In + Insurance + Import Duties – Purchase Returns and Allowances – Purchase Discounts

What is the cost of goods purchased equation?

The equation for cost of goods purchased helps determine how much inventory was acquired during a period. It looks like this:

COGP = Gross Purchases + Freight In – Purchase Returns – Discounts

What is included in the cost of purchase?

The cost of purchase includes the price of the goods themselves, along with any costs necessary to bring the goods to your location. This can include shipping fees, insurance, import duties, and handling charges.

What is the formula for COGS?

The standard formula for Cost of Goods Sold (COGS) is:

COGS = Beginning Inventory + Purchases During the Period – Ending Inventory

This tells you how much it cost your business to sell the goods during a specific time frame.

How do COGS work?

COGS work by tracking the actual cost of producing or purchasing the goods your business sells. It's used to calculate gross profit by subtracting COGS from total revenue. Keeping COGS accurate is crucial for understanding real profitability.

What is COGS meaning?

COGS stands for Cost of Goods Sold. It refers to the total direct costs involved in producing or purchasing the products a company sells during a specific time period. It's a key metric in analyzing business performance and profitability.

Leah Tran

Leah Tran is a Content Specialist at TrueProfit, where she crafts SEO-driven and data-backed content to help eCommerce merchants understand their true profitability. With a strong background in content writing, research, and editorial content, she focuses on making complex financial and business concepts clear, engaging, and actionable for Shopify merchants.

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