Instructions for Gross Profit Section of Income Statement-Periodic System
MJC Revised 10-2011 Page 2
Always start with the three-line header, which includes first the name of the corporation; second,the title of the statement; and third, the fiscal period for which the statement is prepared. If thestatement is not a complete financial
statement, place the word “Partial” after the title of the
statement in brackets.
Net sales Section:
Place the title “Revenues:” in
the far left column. Since this is a section header, there willbe no dollar amount in the right hand columns.
Next place the title “Sales” in the far left column. This amount will be all of thecorporation’s sales for the fiscal period found in the gene
ral ledger account. Place thedollar amount in the second column from the right.
The next two lines will be labeled: “Less: Sales Returns and Allowances and Sales Discounts.”
Take these amounts from their ending balances from the ledger accounts (T-Accounts). Placethe dollar amounts for these two accounts in the third column from the right.4.
Add the sales returns and allowances to the sales discounts. On the same line as the salesdiscounts, place the resulting dollar amount in the second column from the right.5.
Now subtract the total from step 4 from the sales to get net sales. Title this line “Net sales” in
the far left hand column. Place the resulting dollar amount in the far right hand column.
Cost of Goods Sold Section:
On the first line of this
section, place the title “Cost of goods sold” in the far left hand column.
No dollar amount will be shown since this is a section header.2.
Now place the title “Inventory, January 1” in the far left hand column. Place the dollar amount in
the second column from the right.3.
Next, place the title “Purchases.” Place the dollar amount in the third column from the right.
On the next two-
line place the titles “Less: Purchases returns and allowances and Purchasesdiscounts.” Place the dollar amounts for these
two accounts in the fourth column from the right.5.
Now add the purchases returns and allowances to the purchases discounts. Place the results inthe third column from the right on the same lines as the title as purchase discounts.