Income statements and statements of financial position: Further considerations

Question

What are returns outwards?

Answer 1

Goods returned to their suppliers by businesses.

Answer 2

Goods returned to businesses by their customers.

Answer 3

(Sales less returns inwards) - (Cost of goods sold less returns outwards)

Answer 4

The carriage charged on goods sent out by a business to its customers.

Answer 5

To ensure that the true cost of buying goods for resale is always included in the calculation of gross profit, carriage inwards is always added to the cost of purchases in the trading account.

Answer 6

Carriage outwards is always entered in the profit and loss account section of the income statement. It is never included in the calculation of gross profit.

Answer 7

The closing inventory for one period is always brought forward as the opening inventory for the next period.

Answer 8

Inventory of goods at start of year

Add Purchases

Total goods available for sale

Less What remains at the end of the year (i.e. closing inventory)

Therefore the cost of goods that have been sold is

Answer 9

Balance (previous year)

Add Net profit for the year

text-decorationLess Drawings

Total capital

Answer 10

You also need to add to the cost of the goods in the trading account any costs incurred in converting purchases into goods for resale. Any additional costs incurred in getting goods ready for sale are debited to the trading account.