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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.

Calculating Cost of Goods Sold on the Income Statement Throughout Accounting 10 the income statements that

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

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.

  • 2. Add your purchases for 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.

4. Given below is a simple trial balance and ending inventory figure for London Retailers after

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.