# AP2 - Cost of goods

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Registered Posts: 34 Epic contributor 🐘
Morning,

Can someone clarify if to calculate the cost of goods sold is

net profit - mark up = Cost of goods?

Then purchases would be Open inventory + Cost of goods - Cl;osing Inventory?

Have my exam on monday :001_unsure:

Thanks

• Registered, Moderator Posts: 2,034 mod
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Opening Inventory
+ Purchases
- Closing Inventory
= Cost of Goods Sold

Sales Revenue
-Cost of Goods Sold
= Gross Profit

And if you re-arrange the formula
Sales Revenue
-Gross Profit
=Cost of Goods Sold

Gross Profit...... = Profit Margin
Sales Revenue

Gross Profit...... = Mark up on cost
Cost of Sales
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered Posts: 34 Epic contributor 🐘
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Thank you, fingers crossed for Monday
• Registered Posts: 34 Epic contributor 🐘
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How about working out the purchases?

On a paper received by the tutor we were given the Sales Revenue, and the Opening and Clsoing Inventory, we had to calculate the cost of goods then the purchases?
• Registered Posts: 89 Epic contributor 🐘
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Opening Inventory
+ Purchases
- Closing Inventory
= Cost of Goods Sold

would rearrange to
Purchases = Cost of Goods Sold + Closing Inventory - Opening Inventory

Basic algebra is what you need to sort them out.

Opening Inventory + Purchases - Closing Inventory = Cost of Goods Sold

---- (Add Closing Inventory to each side)
Opening Inventory + Purchases - Closing Inventory + Closing Inventory = Cost of Goods Sold + Closing Inventory

---- (The Closing Inventory on the left side of the equation cancel each other out)
Opening Inventory + Purchases = Cost of Goods Sold + Closing Inventory

---- ( minus Opening Inventory to each side)
Opening Inventory + Purchases - Opening Inventory = Cost of Goods Sold + Closing Inventory - Opening Inventory

---- (the Opening Inventory on the left side cancel each other out)
Purchases = Cost of Goods Sold + Closing Inventory - Opening Inventory