Gross profit and stock
The income statement shows gross profit as a figure after deducting all the associated costs in producing your product or services from the sales, called gross profit. In another format, Gross profit= Sales- Cost of goods.
The Gross Profit margin ratio
It is the most critical ratio. It is used to assess the relationship between profit and sales.
Gross profit*100/ Sales = Gross profit margin
The gross profit ratio is used to assess a company’s financial health.
Valuation of stock
The assessment of stock left over is considered to be the cost price of the stock ( purchase price of the store) or the current market price, whichever the lower. A company’s first stock s a debit balance in the books at the beginning of a financial period. It was debited to the stock accountant at the close of a previous fiscal period. The debit value of the old account is taken as the trial balance figure when the final reports are prepared for the current period. The opening and closing stock dates should indicate so there is no confusion. The amount in the stock at the beginning of a period is transferred to the trading account at the end of the period.
Cost of sales
The cost of sales is the cost of the goods sold. It consists of the total purchases plus the first stock less the closing share gives the figure for the sales price. The primary purpose of the trading account is to find the g profit or loss for a stated period. The gross profit is the difference between the sales and the cost of goods sold. The formula for the price of sales is as follows.
Opening stock+ Purchases – Closing stock= Cost of sales.