Let's discuss how a company can track its inventory and cost of goods sold. Cost of goods sold is the direct costs related to the production of the goods that will be sold by the company. It includes the cost of materials including the direct labor costs and material used in the production. Albrecht et al. (2022) state that Goods Available for Sale = Beginning inventory Inventory Purchased. The accounting issue is to determine from the Good Available for Sale, the Cost of Goods Sold (i.e., goods sold- reported on income statement as an expense) and Inventory (i.e., goods that weren't sold- reported on the balance sheet as an asset.)