GROSS PROFIT = NET SALES – COST OF GOODS SOLD

NET INCOME = GROSS PROFIT – OPERATING EXPENSE

NET SALES = SALES – SALES DISCOUNT

COST OF GOODS PURCHASED = PURCHASES – PURCHASE RETURN –

PURCHASE DISCOUNT + FREIGHT IN

COST OF GOODS SOLD = BEGINNING INVENTORY + COST OF GOODS

PURCHASE – ENDING INVENTORY

COST OF GOODS SOLD – GOODS AVAILABLE FOR SALE – MERCHANDISE

INVENTORY, END

PURCHASE RETURNS AND ALLOWANCES = (PURCHASES + FREIGHT IN) OR

TOTAL COST OF GOODS DELIVERED – NET COST OF PURCHASES = TOTAL
PR&A – PURCHASE DISCOUNT

TOTAL COST OF GOOFS DELIVERED = PURCHASES + FREIGHT IN

GOODS AVAILABLE FOR SALE = COST OF GOODS PURCHASED +

MERCHANDISE INVENTORY, BEGINNING

NET COST OF PURCHASES = GOODS AVAILABLE FOR SALE – MERCHANDISE

INVENTORY, BEGINNING

MERCHANDISE INVENTORY, END = GOODS AVAILABLE FOR SALE – COST OF

GOODS SOLD
PURCHASES = [(PURCHASE RETURNS AND ALLOWANCES + PURCHASE
DISCOUNT) – FREIGHT IN] – NET COST OF PURCHASES

FREIGHT IN = TOTAL COST OF GOODS DELIVERED – NET COST OF

PURCHASES

COST OF GOODS MANUFACTURED = WORK IN PROCESS, BEGINNING + TOTAL

MANUFACTURING COST – WORK IN PROCESS, END

COST OF GOODS SOLD IN MANUFACTURING = FINISHED GOODS, BEGINNING +

COST OF GOODS MANUFACTURED – FINISHED GOODS, END OR FINISHED
GOODS, BEGINNING + COST OF GOODS MANUFACTURED + TOTAL GOODS
AVAILABLE FOR SALE – FINISHED GOODS, END

FINISHED GOODS AVAILABLE FOR SALE = FINISHED GOODS, BEGINNING +

COST OF GOODS MANUFACTURED

DIRECT MATERIALS = RAW MATERIALS, BEGINNING + PURCHASES OF RAW

MATERIALS + CARRIAGE ON PURCHASES OF RAW MATERIALS – RAW
MATERIALS, END

GROSS PROFIT = SALES REVENUE – COST OF SALES

PROFIT OF THE YEAR = GROSS PROFIT + OTHER INCOME – EXPENSES

PROFIT MARGIN = NET INCOME/REVENUES

RETURN ON TOTAL ASSETS = NET INCOME/AVERAGE TOTAL ASSETS

RATE OF RETURN ON EQUITY = NET INCOME/AVERAGE OE

WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES

QUICK RATIO OR ACID TEST RATIO = QUICK ASSETS/CURRENT LIABILITIES

DEBT RATIO = TOTAL LIABILITIES/TOTAL ASSETS

EQUITY RATIO = TOTAL OE/TOTAL ASSETS

Another major difference between a manufacturing business and a merchandising

business is in the
computation of the Cost of Goods Sold. In a merchandising business, it is computed
as follows:
Merchandise Inventory, Beginning XXXX
Add: Net Cost of Purchases XXXX
Total Goods Available for sale XXXX
Less: Merchandise Inventory, End XXXX
Cost of Goods Sold XXXX

In a manufacturing business, the Cost of Goods Sold in the Income Statement

appears as follows:
Finished Goods Inventory, Beginning XXXX
Add: Cost of Goods Manufactured (Schedule 1) XXXX
Total Goods Available for Sale XXXX
Less: Finished Goods Inventory, End XXXX
Cost of Goods Sold XXXX
====
Before computing and presenting the Cost of Goods Sold Section, a supporting
schedule called
Statement of Cost of Good Manufactured should be prepared as follows:

Raw Materials Inventory, Beginning XXXX

Add: Net Cost of Purchases XXXX
Total Materials Available for Use XXXX
Less: Raw Materials Inventory, End XXXX
Raw Materials Used XXXX
Direct Labor Cost XXXX
Manufacturing Expenses (Itemized) XXXX
Total Manufacturing Cost XXXX
Add: Work-in-Process Inventory, Beginning XXXX
Total Cost Placed in Process XXXX
Less: Work-in-Process Inventory, End XXXX
COST OF GOODS MANUFACTURED XXX