AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
Cost of goods sold (COGS) is the cost of the stock you actually sold in a period. Calculate it as opening stock plus purchases (including inward transport) minus closing stock, all valued at what you paid, not at selling price. Sales minus COGS is your gross profit.
The formula
COGS = opening stock + purchases − closing stock
The logic is simple. Everything you had at the start plus everything you bought was available to sell. Whatever is still on the shelf at the end was not sold. The difference must have been sold, or lost, damaged or taken.
What goes into each part
| Part | Include | Leave out |
|---|---|---|
| Opening stock | Last period's closing stock count, at cost | Anything you have already written off |
| Purchases | Supplier invoices for goods for resale; transport, loading and levies to bring them to the shop | Equipment, shelves, rent, salaries, your own household items |
| Closing stock | Physical count at the end of the period, at cost | Goods you have sold but not yet delivered; goods held for someone else |
Deduct any supplier returns or credit notes from purchases. If you take goods from the shop for the family, remove them from purchases at cost and record them as owner drawings; they were not sold.
Worked example: a provisions shop for one month
Example only. A shop in Benin City counts stock on 1 and 31 August.
| Line | ₦ |
|---|---|
| Opening stock (1 August count, at cost) | 2,400,000 |
| Add: purchases from suppliers | 5,800,000 |
| Add: transport and offloading on purchases | 200,000 |
| Goods available for sale | 8,400,000 |
| Less: closing stock (31 August count, at cost) | (2,900,000) |
| Cost of goods sold | 5,500,000 |
| Sales for August | 7,150,000 |
| Gross profit | 1,650,000 |
Gross margin is ₦1,650,000 ÷ ₦7,150,000 ≈ 23.1%. Rent, salaries and power come out of that gross profit.
Valuing stock at cost
Closing stock must be valued at what it cost you, not what you will sell it for. If you count 40 cartons that cost ₦12,000 each and sell for ₦15,000, they go into the books at ₦480,000 (40 × ₦12,000), not ₦600,000. Using selling price inflates closing stock, shrinks COGS and makes profit look bigger than it is.
When the same item has been bought at different prices, which is common when supplier prices rise month to month (see pricing groceries when costs keep rising), decide on a method and keep to it. Many shops use first-in, first-out: the oldest stock is assumed sold first, so closing stock is valued at the most recent prices. Damaged, expired or unsellable stock should be written down to what it can realistically fetch, or to nil.
Counting once a month or tracking every sale
There are two ways to arrive at the figure. With periodic counting, you count stock at the end of each month and use the formula above; it is simple and suits most small shops. With perpetual tracking, your point-of-sale software records the cost of each item as it is sold, so COGS builds up through the month automatically. Perpetual tracking still needs physical counts, because the software only knows what was scanned. The gap between what the system says should be on the shelf and what is actually there is your shrinkage, and it is worth reviewing every month. If you are considering scanning, see setting up barcodes in a small shop.
Common mistakes
- Guessing closing stock. COGS is only as good as the count. See stock count procedure for a small shop.
- Leaving out inward transport. Bus fare and loading to bring goods from the market are part of their cost.
- Mixing in expenses. Shop rent and staff wages are operating expenses, not COGS.
- Ignoring shrinkage. Theft and breakage show up as higher COGS. If gross margin drops without a price change, investigate.
- Not recording own use. Household goods taken from stock should come out of purchases.
Error check
Example only. If closing stock is overstated by ₦300,000, COGS is understated by ₦300,000 and gross profit is overstated by the same amount. The error reverses next month, because this month's closing stock is next month's opening stock, so one bad count distorts two months.
Why it matters for tax and lending
Your gross profit figure, and so your taxable profit, depends on COGS. Section 31 of the Nigeria Tax Administration Act 2025 requires records with enough information on all relevant transactions to determine tax liability, kept for at least six years, so keep supplier invoices and stock count sheets. Under the Nigeria Tax Act 2025, WTS Blackwoodstone's January 2026 summary notes that companies with turnover under ₦100 million and assets below ₦250 million are exempt from company income tax, but they still file annual returns (section 11, NTAA 2025). Lenders will also look at gross margin to judge whether your business can repay.
Knowing COGS precisely lets you set prices properly; see cost-plus pricing, and track how long stock sits using the cash conversion cycle.
Where Pryme fits
Paying suppliers from a dedicated Pryme business account keeps purchase records in one place, which makes the purchases line quicker to total each month.
Questions people ask
What is the formula for cost of goods sold?
Opening stock plus purchases (including inward transport) minus closing stock, all valued at cost.
Is transport part of cost of goods sold?
Transport and loading to bring stock into your shop is. Delivery to customers is usually a selling expense.
Should I value closing stock at cost or selling price?
At cost. Valuing at selling price overstates profit.
What is a good gross profit margin for a provisions shop in Nigeria?
It varies by product mix and location. Track yours monthly and investigate sudden falls, which often point to shrinkage or unrecorded price rises.
Sources
- Nigeria Tax Administration Act 2025 (gazette copy), sections 11, 22 and 31 · accessed Oct 2026
- The Nigerian tax reforms: what it means for MSMEs and individuals (WTS Blackwoodstone via Mondaq, 22 Jan 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.