Cost of Goods Sold (COGS): Reconcile Stock and Purchases

This worksheet suits a retailer or wholesaler reconciling a month's stock. It keeps the arithmetic separate from decisions about tax valuations or accounting adjustments. Manufacturers also need work in progress and conversion costs, which this simple resale example doesn't model.

Start with the reporting dates and valuation basis

Write the first and last dates at the top of the worksheet. Obtain the previous closing inventory report, purchases and supplier credits, inbound freight records and the current stock count. A stock figure at selling price won't reconcile to purchases measured at cost.

The ATO's trading-stock explanation describes the opening-stock, purchases and closing-stock relationship. Business Victoria also explains the standard formula and its industry differences. For this management worksheet, use the valuation basis already approved for your records. This guide doesn't choose a tax valuation method or determine a stocktaking concession.

Reconcile the clean example first

Assumptions: Fictional Australian-dollar management-costing example. Amounts exclude GST that is assumed recoverable; any non-recoverable tax is already included in costs. These assumptions do not establish your GST entitlement. Contribution is before unallocated overheads and income tax.

Movement	Amount	Running amount
Opening stock at cost	$18,400	$18,400
Goods purchased	$12,600	$31,000
Supplier returns credited	−$600	$30,400
Inbound freight assigned to stock	$900	$31,300
Closing stock at the same cost basis	−$15,700	$15,600 released from inventory

Original ASBG worked example. All businesses, amounts and scenarios are fictional. The table contains the same figures as the visual.

The calculation is $18,400 + $12,600 − $600 + $900 − $15,700 = $15,600. In the clean example, all inventory leaving the business was sold and the count agrees. On sales of $28,000 measured on the same GST basis, gross profit is $12,400: $28,000 minus $15,600. Gross margin is 44.29% after rounding.

The $12,600 of purchases isn't automatically the cost of this month's sales. Some purchases are still on the shelf, while some sales came from the opening stock. Nor does paying an old supplier bill create a new purchase in this reconciliation.

Give exceptions their own investigation list

A stock count may show a difference without explaining what caused it. List those differences before deciding what to post.

Assumptions: Fictional Australian-dollar management-costing example. Amounts exclude GST that is assumed recoverable; any non-recoverable tax is already included in costs. These assumptions do not establish your GST entitlement. Contribution is before unallocated overheads and income tax.

Item found	What to compare	Question to resolve
Customer return	Credit, receipt of goods and condition check	Is it saleable stock again, damaged stock or still in transit?
Owner took two items	Withdrawal record and count	What adjustment and tax treatment does the adviser require?
Five items missing	Count sheets, transfers, dispatches and write-offs	Were they sold, moved, damaged or miscounted?
Delivery received after cutoff	Goods receipt, supplier invoice and purchase terms	Which period owns the stock and cost?

Original ASBG worked example. All businesses, amounts and scenarios are fictional. The table contains the same figures as the visual.

Don't add these examples to the $15,600 without evidence. They are separate possible exceptions, not extra entries in the worked total. If damaged or missing stock is already reflected in closing inventory, subtracting another loss from stock could count the same movement twice.

Trace a difference in a useful order

First compare the opening balance with the last approved closing report. Next check purchase totals against the inventory report rather than the bank payments. Look for supplier credits, duplicated imports and freight sitting in an unrelated expense account.

Then test cutoff: take the last few receipts and dispatches around month-end and follow them through both reports. Record goods in transit and returns awaiting inspection as questions, with document references. Finally, investigate quantity differences using a recount before changing unit costs to make the total agree.

Keep the original reports and the reconciliation version that was approved. A single unexplained journal may make the accounts balance while leaving the next stock order based on the wrong quantities.

Where to get help

Read the result alongside the profit and loss statement and balance sheet. For the cost entering stock, use the landed cost worksheet. The pricing and profit hub has the next pricing checks.