Trading Accounts

Calculating Profit

If I bought 30 cell phones in Singapore

for $50 each and sold them in New
Zealand for $2 100 what is my profit?
How much did I sell each cell phone for?

Profit = $2100 - (30 X $50)

Income/Revenue/turnover is the total
= amount
$2100 - $1500
earned from selling
Sellingaprice
product.
= $2100 / 30
=$600 . = $70 each
Profit is Income minus the costs of
earning that income.
Calculate the profit for each of the following
(show workings)

1. Qeag purchased 3000 bottles of cola for $0.80 each. He sold

Profit
them= $2100
for $1.50.

2. Sandiford purchased : 5000 – 2000 = 3000

500 CDs for $4 each which he sold for $5000 3000 – 2100 = 900
300 DVDs for $7 each which he sold for $10 each 2000-1500 = 500
100 Voice recorders for $15 each which he sold for $20.Profit = $4400

3. Hickman purchased 600 umbrellas for $8 each. He sold them

Loss =for
$800
$4000

4. Robinson purchased a carton containing 50 packsProfit

of tennis
= 500balls
– 300for–$300
30 = plus
freight ($30). He sold each pack for $10. $170

5. McMurtry had sales of $13000, purchases of $6500. He was charged $250 for
Profit = $6250
freight.
 Trading Statement
Mr Adams’ trading statement for the period ending ......
Sales 2 100
Less Cost of Goods Sold 1 500
Gross Profit 600
 Trading Statement
Queag’s trading statement for the period ending ......
Sales 4 500
Less Cost of Goods Sold 2 400
Gross Profit 2100
 Trading Statement
Sandiford’s trading statement for the period ending ......
Sales 10 000
Less Cost of Goods Sold 5 600
Gross Profit 4 400
 Trading Statement
Hickman’s trading statement for the period ending ......
Sales 4 000
Less Cost of Goods Sold 4 800
Gross Loss 800
 Trading Statement
Robinson’s trading statement for the period ending ......
Sales 500
Less Cost of Goods Sold
Purchases 300
Freight Inwards 30
Cost of Goods Sold 330
Gross Profit 170
 Trading Statement
McMurtry’s trading statement for the period ending ......
Sales 13 000
Less Cost of Goods Sold
Purchases 6 000
Freight Inwards 750
Cost of Goods Sold 6 750
Gross Profit 6 250
 Homework
Stevens wants to buy himself a Toyota Duet. His father says that if Stevens can earn
$1000 by the end of August he will put in the rest of the money and Stevens can pay
him back interest free over time.

Stevens buys 1000 hand warmers for $5 each and sells them at school for $6.25 each.
By the end of the month he has sold 800 hand warmers. After calculating his gross
profit, Stevens asks his father to honour his agreement and pay for his car. Explain
why.
 Homework Answer
Stevens’ trading statement for the period ending ......
Sales 5 000
Less Cost of Goods Sold
Purchases 5 000
Less Closing Stock (200 X $5) 1 000
Cost of Goods Sold 4 000
Gross Profit 1 000

Stevens still has $1000 worth of hand warmers to

sell therefore they are not part of his costs for the
current period. His father has to put up the
remaining price of the car as he has made his
$1000 profit
 Dealing with stocks
Any stock held at the start of a period is added to purchases when calculating the
cost of goods sold. This is the ‘total goods available for sale’.

Any stock held at the end of a period is then subtracted. This then gives the total
cost of goods sold for the period.

E.g. The next month, Stevens purchased another 1000 hand warmers (still cost $5).
By the end of the month he had sold 1100 of the hand warmers (in other words had
100 left).
 Dealing with stocks
Stevens’ trading statement for the period ending ......
Sales 6 875
Less Cost of Goods Sold
Opening Stock 1 000
Purchases 5 000
6 000
Less Closing Stock (100 X $5) 500
Cost of Goods Sold 5 500
Gross Profit 1 375
 Income Statement
Mr Adams’
Adams Income
trading statement for the period ending ......
Sales 2 100
Less Cost of Goods Sold 1 500
Gross Profit 600
Less Expenses
Remember the phones from Singapore? Buying the
Trade Me Success Fee 150
phones was not the only cost incurred in earning that
Freight Out money. The phones were sold 40on Trade me so each
sale had a success fee of $5. There were also postage
Total Expenses costs of $40 for those phones posted. 190
Net profit 410

To calculate total profit these expenses must be

accounted for also.
 Income Statement
• A trading statement just shows the profit made
from buying and selling goods.
• The income statement combines the trading
statement with other expenses incurred in
earning the income in order to find a net profit.
• When preparing an income statement you must
first decide if an item is part of the cost of goods
sold or the cost of operating the business.
 Income Statement Example
Edward’s trial balance (extract) as at 31 March 2011
Purchases 24 870 Sales 75 640
Wages 12 000 Stock (31 March 2011) 22 500
500
Rent 6 000 Stock
Stock (1
(1 April
April 2010)
2010) 44 200
200
Electricity 2 220 Freight
Freight In
In 11 980
980
Freight Out 1 560 Rates 600
Advertising 8 230 Insurance 750

Cost of Goods Sold Operating Expenses

 Income Statement
Edward’s Income statement for the period ending 31 March 2011

Sales 75 640
Less Cost of Goods Sold
Opening Stock 4 200
Purchases 24 870
Freight In 1 980