What is the initial step in calculating the Cost of Goods Sold (COGS) for a month?

The initial step in calculating the Cost of Goods Sold (COGS) for a month is to combine the cost of beginning inventory with the cost of purchases made during that month. This calculation is essential because it determines the total cost of all inventory that was available for sale during the period.

Beginning inventory represents the cost of goods that were available at the start of the month, while the cost of purchases reflects additional inventory acquired during that month. By combining these amounts, you establish the total inventory cost that will be assessed against the cost of goods sold when items are sold. This foundational step is critical in the COGS calculation process, as it sets the stage for further calculations where you would then subtract the ending inventory from this total to arrive at the COGS figure.

Thus, understanding this calculation accurately aligns with effective inventory management and pricing strategies, contributing to the financial health of a business.