Don't overlook these!
Updated for 2012
Reporting income for a retail business is a bit more involved than for a service business.
For a service business, you simply determine gross receipts then subtract business expenses from gross receipts to arrive at net income.
However, for a retail business the following procedure is followed:
A merchandise business purchases items for resale.
To make a profit, the cost of all items purchased by the business must be marked up to arrive at a selling price.
The selling price of all items sold for the year must provide a sufficient gross margin to cover the cost of the items sold, plus overhead, plus a profit.
For example, if unit A is purchased for $10 and marked up 50%, the selling price would be $15 ($10 plus (50% x $10)).
When unit A is sold for the $15, the $15 is called Gross Sales. Of the $15, $10 represents the cost of goods sold.
To determine cost of goods sold, a physical inventory is generally taken at the end of each year to determine.
Cost of goods sold if figured as follows:
Beginning inventory cost should match the ending inventory cost of the prior year.
If your business is less than one year old, then your beginning inventory is zero.
Net purchases includes:
Net purchases equals:
Goods available for sale:
This is beginning inventory plus net purchases for the year.
This is generally determined by taking a physical count of goods on hand at the end of the year.
Each item on hand is assigned a value in order to determine the dollar amount of the inventory on hand.
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