Calculating Cost of Goods Sold on the Income Statement

Throughout Accounting 10 the income statements that you were use to seeing were fairly basic and looked similar to this.

There was not much to talk about except for the revenue and expenses. The revenue very rarely dealt with goods as it was a service based business that you usually did the account for. Now, in Accounting 20 you will have a much more complex statement with more detail as you have to allocate for the Cost of Goods Sold section in the income statement. In this section you will include information about your beginning inventory, purchases, total cost of merchandise that you have available for sale, current inventory and total merchandise available for sale. After you have included that portion you will go onto your expenses and then compute your net income or loss. The example on the next page shows you how you will have to complete the income statement for a merchandising company.

Calculating the Cost of Goods Sold Section The cost of goods sold can be calculated using any of the inventory costing methods. In order to calculate the Cost of Goods Sold Section you will use the following formula. Beginning Inventory + Purchase for Fiscal Period Ending Inventory = Cost of Goods Sold 1. 2. 3. 4. Identify the inventory you have on hand at the beginning of the fiscal period. Add your purchases for the fiscal period. Total all of the merchandise that you have available for sale. Subtract the inventory value on hand at the end of the fiscal period.

For example: Joshs Juice store had a beginning inventory of 35 000.00 as of January 1st, 2013. His purchases were 100 000.00 for the year. The inventory he has on hand at the end of the fiscal period is 5 000.00. Calculate the cost of goods sold. 35000.00 + 100 000.00 -5000.00 = 130 000.00

Exercises 1. Complete the chart by filling in the following figures. Year 1 Beginning Inventory Merchandise Purchased Goods Available for Sale Merchandise Sold Ending Inventory 100 Units ____ Units 800 Units ____ Units 300 Units Year 2 ____ Units 900 Units ____ Units 1000 Units ____ Units Year 3 ____ Units ____ Units ____ Units 800 Units 50 Units

b. If the units cost $5.00 each throughout year three, work out the cost of goods sold section.

2. For each of the following, calculate the cost of goods sold. Beginning Inventory 32 000 85 600 65 550 33 800 48 500 Purchases 74 250 410 360 110 357 82 640 150 650 Ending Inventory 33 500 88 300 60 548 33 500 50 300 COGS

3. Given below are some accounts and their balances. Using these accounts calculate the costs of goods sold figure. Ending inventory is 15600. Accounts Bank A/R Merchandise Inventory Supplies Automobile Equipment Accounts Payable T. Lao Capital T. Lao Drawings Sales Purchases Advertising Car Expense Rent Expense Utilities Expense Wages Expense Balances 1 500 22 450 14 500 1 300 18 000 22 000 4 532 77 558 12 000 82 600 41 300 1 100 5 500 9 000 2 150 13 890

4. Given below is a simple trial balance and ending inventory figure for London Retailers after a fiscal period of one month.

Ending inventory is $25 350.00, answer the following questions. a. Give the beginning inventory figure.

b. Give the selling price of the goods sold.

c. Calculate the cost of good sold.

d. Calculate the gross profit

. e. Calculate to total operating expenses

f. Calculate the net income.