Businesses frequently make critical accounting errors when calculating and recording the cost of goods sold, which can distort net income and tax liabilities. Common mistakes include omitting direct labor expenses or indirect manufacturing overhead costs that rightfully belong in the calculation, misclassifying operating expenses (such as marketing or administrative salaries) as inventory costs, and failing to account for inventory shrinkage, obsolescence, or damaged goods. Inconsistent valuation methods and poor physical inventory counting practices also lead to inaccurate ledger entries.