COMMERCE 1AA3 Study Guide - Final Guide: Contingent Liability, Gross Profit, Promissory Note
9 Dec 2016
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Net sales - cost of goods sold = gross profit. Gross profit - operating expense = income from operations (operating income) Operating expenses: salaries, rent, depreciation, bad debt expense. Operating expense - other expense and losses + other revenues and gains = income before taxes. Income before taxes - income tax expenses = net income. Understand how they affect income and the balance sheet. To analyze the effect of inventory errors: Ending inventory = beginning inventory + net purchases - cost of goods sold. Cogs = beginning inventory + net purchases - ending inventory. Cogs will be understated income will be overstated retained earnings and shareholders" equity will be overstated (current year) For the following year, ending inventory of the current period will be the beginning inventory for the next period. Cogs will be overstated income will be understated retained earnings and shareholders at the end of the year will not be affected.
