AFM101 Lecture Notes - Lecture 13: Gross Profit, Income Statement, Current Asset

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Chapter 5 - inventory & cost of goods sold. Merchandising companies sell inventory and service companies do not. Gross profit is the excess of sales revenue over cost of goods sold. Gross profit = sales revenue - cogs (income statement) A merchandising company will have an account called inventory (cost of inventory on hand) in its current asset section of the balance sheet. Inventory is based on cost of inventory on hand. Cost of goods sold is based on cost of inventory cost. Sales revenue is based on the selling price of inventory sold. Sale revenue = # of inventory units sold sale price. According to ifrs and aspe, inventory"s cost includes: purchase price, freight-in, insurance while in transit, any costs paid to make the inventory ready to sell, less returns, less allowances, less discounts. All other costs (e. g. , advertising, sales commission, etc. ) are operating expenses.

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