AC 210 Lecture Notes - Lecture 26: Gross Profit, Gross Margin, Income Statement
5 Jun 2018
School
Department
Course
Professor
Net Purchases and Goods Purchased
Net purchases is found by subtracting the credit balances in the purchases returns and
allowances and purchases discounts accounts from the debit balance in the purchases
account The cost of goods purchased equals net purchases plus the freight‐in
account's debit balance.
The Cost of Goods Available and Sold
The cost of goods available for sale equals the beginning value of inventory plus the
cost of goods purchased. The cost of goods sold equals the cost of goods available
for sale less the ending value of inventory.
Gross Profit
find more resources at oneclass.com
find more resources at oneclass.com
Gross profit, which is also called gross margin,represents the company's profit from
selling merchandise before deducting operating expenses such as salaries, rent, and
delivery expenses. Gross profit equals net sales minus the cost of goods sold.
Financial Statements with Inventory
The statement of owner's equity and the statement of cash flows are the same for
merchandising and service companies. Except for the inventory account, the balance
sheet is also the same. But a merchandising company's income statement includes
categories that service enterprises do not use. A single‐step income statement for a
merchandising company lists net sales under revenues and the cost of goods sold
under expenses.
Music World Income Statement For the Year Ended June 30,20X3
Revenues
Net Sales
$1,172,000
Interest Income
7,500
Gain on Sale of
Equipment
1,500
Total Revenues
1,181,000
Expenses
Cost of Goods Sold
$596,600
Selling Expenses
177,000
General and
Administrative
Expenses
152,900
Interest Expense
18,000
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
The cost of goods available for sale equals the beginning value of inventory plus the cost of goods purchased. The cost of goods sold equals the cost of goods available for sale less the ending value of inventory. Gross profit, which is also called gross margin,represents the company"s profit from selling merchandise before deducting operating expenses such as salaries, rent, and delivery expenses. Gross profit equals net sales minus the cost of goods sold. The statement of owner"s equity and the statement of cash flows are the same for merchandising and service companies. Except for the inventory account, the balance sheet is also the same. But a merchandising company"s income statement includes categories that service enterprises do not use. A single step income statement for a merchandising company lists net sales under revenues and the cost of goods sold under expenses.
