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

164 views4 pages

ochretortoise616

31 Oct 2010

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

azizs2026mac and 38565 others unlocked

MGAB01H3 Full Course Notes

Verified Note

16 documents

Document Summary

There are two forms of income statements that are widely used by merchandising companies: a multiple-step income statement or a simplified income statement. 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. The multiple-step income statement also distinguishes between operating and non- operating activities. The statement also highlights intermediate components of income and shows subgroupings of expenses. As a contra revenue account, sales returns and allowances is deducted from sales in the income statement to arrive at net sales. Cost of goods sold is deducted from sales revenue to determine gross profit. Sales revenue used from this calculation is net sales. This is done by dividing the amount of gross profit by net sales. Gross profit represents the merchandising profit of a company.

Related Questions

E4-9 Multiple-step income statement:

In October 31, 20Y5, the balances of the accounts appearing inthe ledger of Quality Interiors Company, a furniture wholwsaler,are as follows:

Administrative expenses $600,000 Office supplies $5,000

building $2,000,000 retained earnings $903,000

capital stock $300,000 salaries payable $12,000

cash $175,000 sales $5,000,000

cost of merchandise sold $2,500,000 Sales discounts $400,000

dividends $20,000 sales returns and allowances $100,000

interest expense $50,000 selling expenses $850,000

merchandise inventory $400,000 store supplies $15,000

notes payable $900,000

Instructions:

a. Prepare a multiple-step income statement forthe year ended October 31, 20Y5.

b. Compare the major advantages anddisadvantages of the multiple-step and single-step forms.

Income statement for merchandiser:

For the fiscal year, sales were $12,140,000, sales discountswere $250,000, sales returns and allowances were $80,000, and costof merchandise sold was $7,000,000.

Instructions:

a. What was the amount of net sales?

b. What was the amount of gross profit?

Gross profit does not appear

1) on a merchandising company income statement.

2) on a service company income statement.

3) to be relevant in analyzing the operation of a merchandising company.

4) on the income statement if the periodic inventory system is used because it cannot be calculated.