FOUR fundamental operations in BUSINESS

PROFIT AND LOSS

DEFINITION OF TERMS

GROSS SALES Gross sales is the actual amount received for selling the goods.

REFUNDS
Refunds are amount returned usually if goods are defective.

NET SALES
Net sales are obtained when refunds are being deducted from the gross sales.

COST OF GOODS SOLD

or buying price is the amount paid for articles bought including the buying expenses. To compute for the cost of goods sold for a period of time, the formula is:

Beginning Inventory + Purchases = Goods for Sale Ending Inventory = cost of goods sold

INVENTORY Inventory is an itemized list of goods on hand.

GROSS PROFIT
Gross Profit is the difference between the net sales and the cost of goods sold. Net sales are always greater than cost of goods sold.

OPERATING EXPENSES Operating expenses or overhead are selling expenses such as salaries or wages, travelling expenses, rentals, water, electric bills, commissions, taxes.

NET PROFIT Net profit is the amount obtained when all the selling expenses or other cost of doing business are deducted from the gross profit.

GROSS LOSS Gross loss results if the cost of goods sold is greater than the sales. Net loss results after adding the gross loss and the operating expenses or selling expenses.

Formula for computing LOSSES: Cost of Goods Sold Net Sales = Gross Loss + Operating Expenses = Net Loss

Sample problems
1.

Mr. Aldwin Leynes had net sales amounting to P10,085.75. The cost of goods sold was P4,033.45. The operating expenses amounted to P2,445. Find the net profit, or net loss, as the case maybe.

Solution:
P10,085.75 - 4,033.45 _______ 6,052.30 - 2,445.00 _______ P3,607.30 net sales cost of goods sold gross profit operating expenses net profit

Problem #2
A bookstore owner had a stock of goods worth P5,039.80 on June 30. His purchases after that date amounted to P3,450. On July 31, his stock of goods on hand was P4,100.50. How much was the cost of goods sold?

Solution:
P5,039.80 + 3,450.00 ________ 8,489.80 -4,100.50 _______ P4,389.30 beginning inventory purchases goods for sale ending inventory cost of goods sold

Drill exercise

Fill in the tables

STORE NET SALES COST OF GOODS SOLD GROSS OPERATING PROFIT EXPENSES or GROSS LOSS ______ 4,735.40 ______ ______ 2,200.40 ______ 4,246 207 NET PROFI T or NET LOSS _____ 2,980 _____ _____

A B C D

24,675.50 _______ 18,256.25 5,650.00

17,277.55 15,112.79 14,245.80 7,935

Solve the problems:

1.

Helen Sarte bought a microwave oven for 10,575. At what price should she sell it if she desired a gross profit of P1,100?

Problem #2 A student of business mathematics got 88%, 85%, 80%, 87%, 84% in his 5 quizzes. What must he get in his sixth test in order to get an average of 85%.

Problem #3
Travel expenses for six sales representatives of Franco Home Products, Inc. are: P6,724; P5,472; P2,432; P3,091; P4,283; P3,819. Find the total travel expenses of the representatives. Find the average expenses to the nearest pesos.

Problem #4
A dressmaker was paid P50 for each adult dress and P30 for each childs dress. What was her average earnings if for 5 days she was able to sew 15 adult dresses and to childrens dresses?

Problem #5
On June 1, Rene de Leons merchandise inventory was P47,360. During that month he purchased additional goods costing P52,010. On June 30, his inventory was P49,870. What was the cost of goods sold?

End of CHAPTER 1