Question

How is $750 established as Gross Profit & Cost of Good sold as $6650?

The gross profit section of the income statement would appear as follows:
Sales Revenue $3,400 Less :
Cost of goods sold Begining Inventory $5,000
Add : Purchases $3,000
Add : Freight - in $190 Cost of goods available for sale $8,190
Less: Ending inventory $1,540
Cost of goods sold $6,650
Gross profit $750

Answer 1

Gross profit is calculated by subtracting the cost of goods sold from sales revenue, which in this case leads to $750. The cost of goods sold of $6,650 is determined by adjusting the beginning inventory with purchases, freight-in, and ending inventory values.

Step-by-step explanation:

The calculation of gross profit and cost of goods sold (COGS) is a fundamental concept in accounting, typically covered in an introductory financial accounting course. To arrive at the cost of goods sold, we start with the beginning inventory, add any purchases made during the period, and add any additional costs directly connected to acquiring the goods, like freight-in. The sum provides the total cost of goods available for sale. At the end of the period, we subtract the ending inventory from this amount to determine the cost of goods sold. The gross profit is then derived by subtracting the COGS from the sales revenue.

To provide the requested information: We start with the sales revenue of $3,400 and subtract the COGS ($6,650) to determine the gross profit of $750. The COGS itself is calculated by starting with a beginning inventory of $5,000, adding purchases of $3,000 and freight-in of $190 to get $8,190 as the cost of goods available for sale. We subtract the ending inventory of $1,540 from this amount to arrive at COGS of $6,650.