MGAB01H3 Chapter Notes -Gross Profit, Net Income, Income Statement

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Published on 31 Oct 2010
Summary of Merchandising Entries
Merchandising Financial Statements
¾ There are two forms of income statements that are widely used by merchandising
companies: a multiple-step income statement or a simplified income statement
Multiple-step Income statement
¾ This income statement shows two main steps: Cost of goods sold is subtracted from
net sales to determine gross profit and operating expenses are deducted from gross
profit to determine net income
¾ The multiple-step income statement also distinguishes between operating and non-
operating activities
¾ The statement also highlights intermediate components of income and shows
subgroupings of expenses
Net Sales
¾ As a contra revenue account, sales returns and allowances is deducted from sales in
the income statement to arrive at net sales
Gross Profit
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