Cost of goods sold (COGS)is the cost of merchandise that is sold to the customer It includes cost of raw materials purchased, direct expenses incurred, value of opening stock, i.e., the value of the last year 's unsold stock and excludes closing stock, if any, i.e., the value of current year's unsold stock. The formula to calculate COGS is:
Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses - Closing Stock

Every transaction is recorded in the original book of entry (journal) in order of their occurrence; However, if we want to know that how much we receive from our debtors or how much to pay to the creditors, it is not possible to determine at a single movement. Hence, we prepare accounts to know the position of business activities in the meantime.
There are some steps to record transactions in accounts; it can be easily understood with the help of an example. Sold goods to Mr. A worth Rs.50,000 on 12th April and received payment Rs.40,000 on 25th April. The following journal entries will be recorded

Step (i): Locate the account m ledger, t.e., Mr. A's Account.
Step (ii): Enter the date of transaction in the date column of the debit side of Mr. As Account.
Step (iii): In the 'Particulars' column of the debit side of Mr. A's Account, the name of corresponding account is to be written, i.e., 'Sales'.
Step (iv): Enter the page number of the ledger in the Journal Folio O.F.) column of Mr. A's Account.
Step (v): Enter the amount in the 'Amount' column.
Step (vi): " Same steps are to be followed to post entries in the credit side of Mr. A's Account.
Step (vii): After entering all the transactions for a particular period, balance the account by totaling both sides and write the difference in shorter side, as 'Balance c/d'.
Step (viii): Total of account is to be written on both sides.

Following are the rules of Debit and Credit according. to the nature of accounts
(i) Asset account: An asset is anything of value owned by an enterprise. Tangible things, intangible rights owned by an enterprise, and claims against other persons are included in assets. Rules of debit and credit are: Debit the increase in asset, Credit the decrease in asset.
(ii) Liability account: Liabilities are the obligations of debits which the firm owes to outsiders. Rules of debit and credit are: Debit the decrease, Credit the increase.
(iii) Capital account: Capital is the amount invested by the owner in the business. Rules of debit and credit are: Debit the decrease, Credit the increase.
(iv) Income account: Incomes are the earnings or gains of the business in the ordinary course of business. The rules are : Debit the decrease, Credit the increase.
(v) Expense account: Expense is the cost of the use of things or services for the purpose of generating revenues. The rules of debit and credit are: Debit the increase, Credit the decrease

Following are the limitations of financial accounting:
(i) Incomplete information: The accountant measures only those events that are financial in nature, i.e., that are capable of being expressed in money. Nonmonetary items or events, however, significant they may be, are not measured or recorded in accounting. For example, competency of management, competition in the market, industrial relations, etc.
(ii) Inexactness: Accounting data is some-times based on estimations and it may be inaccurate. Therefore, profits and financial position disclosed by such accounts may not be true and exact. For example, stocks are also valued on some assumptions. Actual useful life of an asset cannot be accurately calculated for the purpose of depreciation.
(iii) Personal influence of accountant: Accounting may be influenced by the personal judgement of the accountant. He applies a choice between different methods of inventory valuation, depreciation methods, provision for doubtful debts, treatment of capital and revenue items and so on. Thus, due to lack of objectivity, income measured may not be true in certain cases.
(iv) Assets may not be shown at their real value: Fixed assets are shown at written down value, i.e., cost less depreciation. There may be a great difference between book value at which assets are shown and current replacement cost. Certain valueless assets are also sometimes shown in Balance sheet, such as, goodwill, patents and trademark, preliminary expenses, etc.
(v) Effect of price level changes not considered : Accounting statements are prepared at historical cost. Money as a measurement unit, change, it is not thus, considered while preparing Profit & Loss Account, thus, the accounting information will not show true financial results.
(vi) Non-monetary transactions are ignored: Financial statements record only monetary transactions. Certain important and valuable assets like Human Resources, do not find a place in a Balance sheet. This is because, there is no yard- stick to measure the value of Human Resources in monetary terms.

(i) Matching Concept: Matching concept means that the expenses should be matched with the revenues generated in the relevant period. Determination of the period in which revenue is to be realised is the first step in the application of this principle. The various basis used for determining the period in which the revenue is realised are
sales basis, cash basis and the production basis. The second step is to find out the costs and expenses to be matched with the revenues. This requires various adjustments to be made for outstanding expenses, accrued incomes, prepaid expenses, unearned incomes, etc. The accountant must estimate the life span of the asset and allocate a part of the expired cost over accounting periods until its useful life is ended. It is often impossible to determine what benefits have been or remain to be derived from certain cost outlays. Matching concept also requires the application of personal judgements in making the estimates for doubtful debts, discounts, etc.
(ii) Duality (Dual Aspect) Concept: Principle of duality or dual aspect concept means that every transaction affects two accounts. That is why Double Entry System of Book-Keeping came into existence. All business transactions are recorded on the basis of this concept. No transaction is complete without dual aspects. This concept is the foundation on which whole of book-keeping and accountancy is based. This principle has given us the fundamental rule "for every debit there is equivalent credit". According to this, there is following accounting equation: Assets = Owners' Equity (Capital) + Outsiders' Equity (Liabilities)

If all the errors are not located up to the date of preparing final accounts, the balance of suspense account is shown in the Balance Sheet. Debit balance in the suspense account is shown on the assets side of balance sheet, while the credit balance is shown on the liabilities side. In case, the balance appearing in the suspense account is nominal the suspense account may be closed by transferring its balance to the Profit & Loss Account, debit balance to the debit side and credit balance to the credit side, as the case may be.