Final answer:
The business's costs include the purchase price and sales tax, summing to $1,150. Upon selling the goods for $1,500 plus 15% sales tax, they recognize $350 in profit and account for the taxes payable. Accounting profit is calculated as total revenues minus explicit costs, with an example provided for a firm's yearly earnings.
Step-by-step explanation:
When a business buys goods for $1,000 and pays an additional 15% sales tax, the total cost of the goods becomes $1,000 + ($1,000 * 0.15) = $1,150. If these goods are then sold for $1,500 with an additional 15% sales tax, the selling price before tax is $1,500, but the total amount the customer pays is $1,500 + ($1,500 * 0.15) = $1,725.
For the accounting treatment, when the goods are bought, the business will record the total cost of $1,150 as inventory on the balance sheet, and the cash or payables will decrease or increase respectively by $1,150. Upon sale, the goods will be removed from inventory and cost of goods sold will be recorded, with the business's revenue increasing by $1,500 and taxes payable by $225 (15% of $1,500). The profit from the sale is the difference between the selling price and the purchase price plus tax paid during purchase (i.e., $1,500 - $1,150 = $350).
Referring to accounting profit, as seen in the provided information, the calculation is total revenues minus explicit costs. For example, if a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the accounting profit would be $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.