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### Calculating Cost of Goods Sold on the Income Statement

Throughout Accounting 10 the income statements that you were use to seeing were fairly basic and looked similar to this.

There was not much to talk about except for the revenue and expenses. The revenue very rarely dealt with goods as it was a service based business that you usually did the account for. Now, in Accounting 20 you will have a much more complex statement with more detail as you have to allocate for the Cost of Goods Sold section in the income statement. In this section you will include information about your beginning inventory, purchases, total cost of merchandise that you have available for sale, current inventory and total merchandise available for sale. After you have included that portion you will go onto your expenses and then compute your net income or loss. The example on the next page shows you how you will have to complete the income statement for a merchandising company.

Calculating the Cost of Goods Sold Section

The cost of goods sold can be calculated using any of the inventory costing methods. to calculate the Cost of Goods Sold Section you will use the following formula.

In order

Beginning Inventory + Purchase for Fiscal Period Ending Inventory = Cost of Goods Sold

• 1. Identify the inventory you have on hand at the beginning of the fiscal period.

• 3. Total all of the merchandise that you have available for sale.

For example: Josh’s Juice store had a beginning inventory of 35 000.00 as of January 1 st , 2013. His purchases were 100 000.00 for the year. The inventory he has on hand at the end of the fiscal period is 5 000.00. Calculate the cost of goods sold.

35000.00 + 100 000.00 -5000.00 = 130 000.00

Exercises

• 1. Complete the chart by filling in the following figures.

 Year 1 Year 2 Year 3 Beginning Inventory Units 100 Units Units Merchandise Purchased Units 900 Units Units Goods Available for Sale Units 800 Units Units Merchandise Sold Units 1000 Units 800 Units Ending Inventory 300 Units Units 50 Units

b. If the units cost \$5.00 each throughout year three, work out the cost of goods sold section.

• 2. For each of the following, calculate the cost of goods sold.

 Beginning Inventory Purchases Ending Inventory COGS 32 000 74 250 33 500 85 600 410 360 88 300 65 550 110 357 60 548 33 800 82 640 33 500 48 500 150 650 50 300

3. Given below are some accounts and their balances. Using these accounts calculate the costs of goods sold figure. Ending inventory is 15600.

 Accounts Balances Bank 1 500 A/R 22 450 Merchandise Inventory 14 500 Supplies 1 300 Automobile 18 000 Equipment 22 000 Accounts Payable 4 532 T. Lao Capital 77 558 T. Lao Drawings 12 000 Sales 82 600 Purchases 41 300 Advertising 1 100 Car Expense 5 500 Rent Expense 9 000 Utilities Expense 2 150 Wages Expense 13 890

4. Given below is a simple trial balance and ending inventory figure for London Retailers after a fiscal period of one month.

Ending inventory is \$25 350.00, answer the following questions.

a. Give the beginning inventory figure.

b. Give the selling price of the goods sold.

• c. Calculate the cost of good sold.

• d. Calculate the gross profit

.

• e. Calculate to total operating expenses

• f. Calculate the net income.