The Lack Of Foresight Is One Of The Many Possible Reasons For Losses In Business

The adjectives “Net” and “Gross” have to be noted. Gross means whole, total, without deductions; net means remaining, clear of extraneous items, free from all deductions. Therefore, Net Sales = Gross Sales – Refunds and allowances and Net Profit = Gross Profit – Operating expenses.

The main reason why a person is primarily engages in business is for profits. Profits represent the difference between what a man puts into the business and what he gets in return. In the normal run of business, the businessman expects to hit back a satisfactory increase over what he has put in the business; thus, the simplified buy and sell set-up is summarized by the formula as: Net Sales – Cost of Goods Sold = Gross Profit.

Sales indicate the amount received for goods sold. Refunds and allowances are re-payments made to customers for returned merchandise, for defective goods and

for other reasonable adjustments.

The item cost of goods sold includes not simply the actual amount paid for the goods but also such buying expenses as transportation or freight charges. The buying expenses should not be confused with the selling expenses, otherwise known as operating expenses. Operating expenses or overhead are incurred in the process of disposing of the goods bought: these usually include such items as rentals, personal wages and etc.

Below is an illustrative example

The Sweet Lady of Fashion Shop bought 28 ready-made dresses for $896 and paid $130 for transportation charges. Twenty dresses were sold for $1,100. What should be the selling price of the remaining 8 dresses to realize a gross profit of $358 on the entire lot of 28 dresses?

Given: $896 cost + $130 transportation + $358 Gross profit = $1,384 amount of expected sales

Given: $1,384 amount of sales of 28 dresses - $1,100 amount of sales of 20 dresses = $284 amount of sales of the remaining 8 dresses.

For the above question, I decided to leave it to would-be readers for this article as a warm-up practice.

Now in order to determine the gross profit earned during a certain period of time, it is often necessary that an inventory or taking stock of the goods left unsold be made. The goods on the hand at the start of business or of the period covered


by the inventory are the beginning inventory. Purchases made during the period increase the stock on hand, even as sales would decrease it; these two items affect the ending inventory.

Beginning Inventory + Purchases = Available Goods and Available Goods – Ending Inventory = Cost of Goods Sold

Below is an illustrative example

On July 1, 2013, the merchandise inventory of Paul Commercial, Inc. was $32,450. The store’s sales during the next six months amounted to $48,380.60 and its purchases were $27,108.90. On December 31, 2013, the store’s inventory was $29,817.30. What was the company’s gross profit for the six-month period?

Presentation for the above illustrative example with answer
Net Sales     $48,380.60
Less:      
  Beginning Inventory $32,450.00  
  Purchases $27,108.90  
  Available Goods for Sale $59,558.90  
  Ending Inventory $29,817.30  
  Cost of goods sold   $29,741.60
Gross Profit     $18,639.00

There are cases when the businessman incurs losses instead of realizing the desired profits. Of the many possible reasons for losses, lack of foresight is cited as the most basic and common. Since a loss is the inverse of profit, the formulas are: Cost of Goods Sold – Net Sales = Gross Loss and Gross Loss + Operating Expenses = Net Loss.

Source of idea:  my old notes back my college days



Article Written By pruelpo

My favorite Saying: “Dream Big and don’t stop without giving it a chance to come true.” I am a father of 3 for 27 years, OFW for 17 years , a Blogger, sometimes a Poet, Self-motivated and Professional by experience. You can call me Paul or Pruel. I am friendly animal but can kick you off when it is needed. LOL. I have no specific areas where my writing will focus on. I write any subject that interests me under the merciless sun.

Posted on: Last updated: 27-07-2016 627 0

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