Calculate the Adjusted Cost of Goods Sold for the Period

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Reviewed by: **David Chen, CPA** | Last Updated: December 2025

Accurately determining the Cost of Goods Sold (COGS) is vital for financial reporting and tax purposes. Use this calculator to easily find your Adjusted COGS by incorporating crucial adjustments like freight, discounts, and inventory write-downs.

Calculate the Adjusted Cost of Goods Sold (COGS)

Adjusted COGS

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Calculation Details

Adjusted Cost of Goods Sold Formula

$$\text{Adjusted COGS} = \text{Unadjusted COGS} + \text{Freight-In} – \text{Purchase Discounts} + \text{Write-Downs}$$
Formula Source: AccountingTools: Adjusted COGS Investopedia: Cost of Goods Sold

Variables Explained

  • Unadjusted COGS: The preliminary Cost of Goods Sold calculated by the standard formula (Beginning Inventory + Purchases – Ending Inventory), before any adjustments.
  • Freight-In / Shipping Costs: Transportation costs incurred to acquire inventory and bring it to the place of business. These are typically capitalized as part of inventory cost, thus increasing COGS.
  • Purchase Discounts / Returns: Reductions in the price of inventory due to prompt payment or goods returned to the supplier. These reduce the cost of goods sold.
  • Inventory Write-Downs: Reductions in the value of inventory due to obsolescence, damage, or market decline (Lower of Cost or Market rule). This adjustment increases the cost of the loss, thereby increasing COGS.

What is Adjusted Cost of Goods Sold?

Adjusted Cost of Goods Sold (Adjusted COGS) is the final, corrected figure representing the direct costs attributable to the production of the goods sold by a company. While the initial COGS calculation is straightforward, adjustments are necessary to adhere to Generally Accepted Accounting Principles (GAAP) or IFRS.

These adjustments ensure that all costs associated with obtaining and preparing the inventory for sale—such as shipping fees (freight-in)—are accounted for, and that inventory is valued correctly (e.g., reflecting losses through write-downs). The Adjusted COGS is the figure used to calculate Gross Profit and is reported on the income statement, directly impacting a company’s profitability metrics and tax liability.

How to Calculate Adjusted COGS (Example)

Let’s use an example where a company has $500,000 in unadjusted COGS, $5,000 in freight-in, $2,000 in purchase discounts, and a $1,000 inventory write-down.

  1. Start with Unadjusted COGS: $500,000
  2. Add Freight-In: $500,000 + $5,000 = $505,000
  3. Subtract Purchase Discounts: $505,000 – $2,000 = $503,000
  4. Add Inventory Write-Downs: $503,000 + $1,000 = $504,000
  5. Final Adjusted COGS: $504,000

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Frequently Asked Questions (FAQ)

Why must Freight-In be included in COGS?

Freight-in (the cost of shipping goods *to* the business) is considered a necessary cost to get the inventory ready for sale, so it must be capitalized and included in the inventory cost, which in turn flows into COGS when the goods are sold.

What is the difference between Adjusted COGS and Unadjusted COGS?

Unadjusted COGS is typically just the result of (Beginning Inventory + Purchases – Ending Inventory). Adjusted COGS includes corrections for errors and other necessary costs like freight, discounts, and write-downs to arrive at the true economic cost.

Do Inventory Write-Ups reduce Adjusted COGS?

Yes. A write-up is the reversal of a previous write-down. If you have an inventory write-up (a rare occurrence), it would be subtracted from COGS, reducing the expense.

How does Adjusted COGS affect taxes?

A higher Adjusted COGS results in a lower Gross Profit and thus a lower taxable income, which is why accurately calculating and justifying all adjustments is crucial for tax reporting.

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