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com Income Statement


Part 1- Calculation of Gross Profit Worked Examples Part A: Adjustment for Opening Inventory and Closing Inventory Example 1: From the information given below, prepare Income Statement for the year ended 31 December 2010 to calculate Gross Profit for the business of Moy. $ Sales Revenue 22 000 Purchases 12 000 Inventory 1Jan 10 6 500 Inventory 31Dec10 7 500 Answer: Moys Income Statement for the year ended 31 December 2010 $ $ Revenue (Sales) Less: Cost of Sales: 6 500 Opening inventory 12 000 Add Purchases 18 500 Cost of goods available for sale (7 500) Less Closing Inventory Gross Profit Note: When Sales > Cost of sales, there is a gross profit. Example 2: From the information given below, prepare Income Statement for the year ended 31 December 2010 to calculate Gross Profit for the business of Joy. $ Sales Revenue 32 500 Purchases 45 000 Inventory 1Jan 10 22 000 Inventory 31Dec10 23 600 Answer: Joys Income Statement for the year ended 31 December 2010 $ $ Revenue (Sales) Less: Cost of Sales: 22 000 Opening inventory 45 000 Add Purchases 67 000 Cost of goods available for sale (23 600) Less Closing Inventory Gross Loss Note: When Sales < Cost of sales, there is a gross loss. $ 32 500 $ 22 000

11 000 11 000

43 400 (10 900)

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Example 3: From the information given below, prepare Income Statement for the year ended 31 December 2010 to calculate Gross Profit for the business of Toy. $ Sales Revenue 39 400 Purchases 36 500 Inventory 1Jan 10 2 600 Inventory 31Dec10 16 200 Answer: Toys Income Statement for the year ended 31 December 2010 $ $ Revenue (Sales) Less: Cost of Sales: 2 600 Opening inventory 36 500 Add Purchases 39 100 Cost of goods available for sale (16 200) Less Closing Inventory Gross Profit $ 39 400

22 900 16 500

Part B: Adjustment for Returns Inwards and Returns Outwards Returns Inwards (also known as sales returns) is deducted from Sales. Returns Outwards (also known as purchases returns) is deducted from Purchases. Example 1: From the information given below, prepare Income Statement for the year ended 31 January 2011 to calculate Gross Profit for the business of Dora. $ Sales Revenue 22 000 Purchases 12 000 Inventory 1 Feb 10 6 500 Inventory 31Jan 11 7 500 Returns Inwards 750 Returns Outwards 550 Answer: Doras Income Statement for the year ended 31 January 2011 $ $ Revenue (Sales) Less: Returns Inwards Less: Cost of Sales: Opening inventory Add Purchases Less: Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Profit $ 22 000 (750) 21 250

6 500 12 000 (550) 11 450 17 950 (7 500)

10 450 10 800

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Example 2: From the information given below, prepare Income Statement for the year ended 31 January 2011 to calculate Gross Profit for the business of Diego. $ 42 650 22 870 5 690 4990 450 230

Sales Revenue Purchases Inventory 1 Feb 10 Inventory 31Jan 11 Returns Inwards Returns Outwards Answer:

Diegos Income Statement for the year ended 31 January 2011 $ $ Revenue (Sales) Less: Returns Inwards Less: Cost of Sales: Opening inventory Add Purchases Less: Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Profit

$ 42 650 (450) 42 200

5 690 22 870 (230) 22 640 28 330 (4 990)

23 340 18 860

Example 3: From the information given below, prepare Income Statement for the year ended 31 January 2011 to calculate Gross Profit for the business of Sara. $ Sales Revenue 36 987 Purchases 35 874 Inventory 1 Feb 10 6 534 Inventory 31Jan 11 4 190 Returns Inwards 379 Returns Outwards 287 Answer: Saras Income Statement for the year ended 31 January 2011 $ $ Revenue (Sales) $ 36 987 (379) 36 608

Less: Cost of Sales: Opening inventory Add Purchases Less Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Loss

6 534 35 874 (287) 35 587 42 121 (4 190)

37 931 (1 323)

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Part C: Adjustment for Carriage Inwards Carriage inwards (also known as carriage on purchases) is added to Purchases. This is because the cost of an item does not only include its purchase price but also any incidental cost to bring the item in its saleable condition and location. Such incidental costs may include items like freight charges, insurance on import and customs duty. Example 1: From the information given below, prepare Income Statement for the year ended 28 February 2011 to calculate Gross Profit for the business of Barbie. $ Sales Revenue 22 000 Purchases 12 000 Inventory 1Mar 10 6 500 Inventory 28Feb11 7 500 Returns Inwards 750 Returns Outwards 550 Carriage Inwards 1 690 Answer: Barbies Income Statement for the year ended 31 February 2011 $ $ Revenue (Sales) Less: Returns Inwards Less: Cost of Sales: Opening inventory Add Purchases Add Carriage Inwards Less: Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Profit $ 22 000 (750) 21 250

6 500 12 000 1 690 (550)

13 140 19 640 (7 500)

12 140 9 110

Example 2: From the information given below, prepare Income Statement for the year ended 28 February 2011 to calculate Gross Profit for the business of Kane. $ 42 650 22 870 5 690 4990 450 230 2 000

Sales Revenue Purchases Inventory 1Mar 10 Inventory 28Feb11 Returns Inwards Returns Outwards Carriage Inwards

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Answer: Kanes Income Statement for the year ended 31 February 2011 $ $ Revenue (Sales) Less: Returns Inwards Less: Cost of Sales: Opening inventory Add Purchases Add Carriage Inwards Less: Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Profit $ 42 650 (450) 42 200

5 690 22 870 2 000 (230)

24 640 30 330 (4 990)

25 340 16 860

Example 3: From the information given below, prepare Income Statement for the year ended 28 February 2011 to calculate Gross Profit for the business of Dolly. $ Sales Revenue 39 400 Purchases 36 500 Inventory 1Mar 10 2 600 Inventory 28Feb11 16 200 Returns Inwards 500 Returns Outwards 350 Carriage Inwards 2 250 Answer: Dollys Income Statement for the year ended 31 February 2011 $ $ Revenue (Sales) $ 39 400 (500) 38 900

Less: Cost of Sales: Opening inventory Add Purchases Add Carriage Inwards Less: Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Profit

2 600 36 500 2 250 (350)

38 400 41 000 (16 200)

24 800 14 100

Part D: Adjustment for Goods Taken by the Proprietor Goods taken by the proprietor for his own use reduces the amount he/ she bought for sale by the business. Therefore, goods taken by the proprietor (which can also be termed as Drawing of Goods) is deducted from purchases in the income statement.

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Example 1: From the information given below, prepare Income Statement for the year ended 28 February 2011 to calculate Gross Profit for the business of Jeff. $ Sales Revenue 22 000 Purchases 12 000 Inventory 1Mar 10 6 500 Inventory 28Feb11 7 500 Returns Inwards 750 Returns Outwards 550 Carriage Inwards 1 690 Goods taken 300 Answer: Jeffs Income Statement for the year ended 31 February 2011 $ $ Revenue (Sales) Less: Returns Inwards Less: Cost of Sales: Opening inventory Add Purchases Add Carriage Inwards Less Drawing of goods Less: Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Profit $ 22 000 (750) 21 250

6 500 12 000 1 690 (300) (550)

12 840 19 340 (7 500)

11 840 9 410

Example 2: From the information given below, prepare Income Statement for the year ended 28 February 2011 to calculate Gross Profit for the business of Jack. $ 32 500 45 000 22 000 23 600 700 900 1 500 450

Sales Revenue Purchases Inventory 1Mar 10 Inventory 28Feb11 Returns Inwards Returns Outwards Carriage Inwards Goods taken

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Answer: Jacks Income Statement for the year ended 31 February 2011 $ $ Revenue (Sales) Less: Returns Inwards Less: Cost of Sales: Opening inventory Add Purchases Add Carriage Inwards Less Drawing of goods Less: Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Loss $ 32 500 (700) 31 800

22 000 45 000 1 500 (450) (900)

45 150 67 150 (23 600)

43550 (11 750)

Example 3: From the information given below, prepare Income Statement for the year ended 28 February 2011 to calculate Gross Profit for the business of Jill. $ Sales Revenue 38 946 Purchases 29 456 Inventory 1Mar 10 3 524 Inventory 28Feb11 3 899 Returns Inwards 187 Returns Outwards 132 Carriage Inwards 400 Goods taken 256 Answer: Jills Income Statement for the year ended 31 February 2011 $ $ Revenue (Sales) $ 38 946 (187) 38 759

Less: Cost of Sales: Opening inventory Add Purchases Add Carriage Inwards Less Drawing of goods Less: Returns Outwards Cost of goods available for sale Less Closing Inventory Gross Profit

3 524 29 456 400 (256) (132)

29 468 32 992 (3 899)

29 093 9 666

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