Cost of Sales and Stocktakes

Understand the real cost behind what you sell — and why accurate stock counts matter.

If you’ve ever looked at your profit and loss report and thought, “That margin doesn’t feel right,” you’re not imagining things. One of the most common reasons for misleading financials is an unclear or inconsistent cost of sales calculation — often linked to stock tracking that’s out of date or incomplete.

In this article, we’ll unpack what cost of sales really includes, how to calculate closing stock with confidence, and what to watch out for — especially if you import stock.

What Is Cost of Sales?

Cost of sales (also called cost of goods sold or COGS) shows the direct costs involved in producing or delivering the goods and services you’ve sold. It’s a key figure for working out your gross profit.

Here’s the basic formula:

This helps you measure the actual cost of what was sold during the accounting period — not just what you purchased.

What to Include in Cost of Sales

For product-based businesses:

• Raw materials
• Packaging
• Freight or shipping-in costs
• Manufacturing wages (direct labour)
• Inventory purchases
• Import duties, customs fees, brokerage
• Currency exchange impacts (if material)
• Stock adjustments (opening and closing)

For service-based businesses:

• Subcontractor fees
• Direct employee time (billable hours)
• Project-specific tools or materials
• Software used in delivering client work

Note: Admin costs, office rent, and other overheads belong under operating expenses — not in cost of sales.

If You Import Stock

Imported goods add another layer to your calculations. Be sure to include:

• The purchase cost (converted to NZD)
• Freight and insurance during transit
• Customs duties and GST (if not claimed back)
• Customs clearance and brokerage fees
• Any material FX conversion fees

All these contribute to your landed cost — the true cost of getting the item ready for sale. Don’t underestimate how much this can shift your margins.

How to Count and Value Closing Stock

Closing stock is the value of unsold inventory at the end of the period. It reduces your cost of sales and appears as a current asset on your balance sheet.

Common Ways to Calculate It:

1. Physical Stocktake – Manually count every item, then apply unit cost
2. Perpetual Inventory – Use software to track movements automatically
3. Valuation Method – Choose a consistent system:
   • FIFO (First In, First Out)
   • LIFO (Last In, First Out)
   • Weighted Average Cost

Practical Stocktake Tips

• Do it after hours: Avoid business disruptions and double handling
• Group and label stock: Make counting more efficient
• Use tech: Inventory systems or spreadsheets speed things up
• Assign roles: Have one person count, another verify
• Review obsolescence: Write off any damaged or unsellable stock

Pro Tip: Quarterly stocktakes (not just annual) can uncover slow-moving items and pricing issues early.

Example Calculation

Let’s say:

• Opening stock = $5,000
• Purchases = $20,000
• Closing stock = $6,000

Then:

That $6,000 of unsold stock stays on your balance sheet — not your P&L.

Why It Matters

Accurate cost of sales and stock valuation gives you:

• True profit visibility – Know what you’re really earning
• Better pricing decisions – Understand your margins clearly
• Smarter forecasting – Plan cashflow and purchasing with more confidence
• Tax accuracy – Avoid overreporting profit and paying more tax than necessary

Whether you’re growing fast or tightening up, clarity here is a game changer.

Ready to Tighten Things Up?

Curious how this applies to your business? Let’s chat. Or ask your advisor to walk you through a cost of sales and stocktake review. It could be one of the most valuable hours you invest this quarter.