AP2 - Cost of goods

Nickynoo

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

SandyHood

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

Nickynoo

Thank you, fingers crossed for Monday

Nickynoo

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?

steve2008

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