Question

During the costing process, to arrive at the gross profit of a trading business, which one of the following formulas is ...


During the costing process, to arrive at the gross profit of a trading business, which one of the following formulas is applied?
a. Sales - (Beginning Inventory - Purchases - Ending Inventory)
b. Sales - (Beginning Inventory + Purchases + Ending Inventory)
c. Sales - (Beginning Inventory + Purchases - Ending Inventory)
d. Sales - (Beginning Inventory - Purchases + Ending Inventory)

Answer

Gross profit = Net sales - Cost of goods sold 

where,

Net sales = Gross sales - sales return and allowances - sales discount 

Cost of goods sold  = Beginning Inventory + Purchases - Ending Inventory

so,

Gross profit = Net sales - (Beginning Inventory + Purchases - Ending Inventory)

Option c. is the correct answer.

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