Which Of The Following Is True Concering The Preparation Of Financial Statements?
Is it a} the cost of goods sold is added to sales, b} the cost of goods sold is deducted from sales. C} the tax and interest are deducted before income profit is reported or d} the gross profit is found by deducting operating expenses from sales.
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Cost of goods sold=opening stock+purchases+direct expenses(eg: Wages, carriage inward, etc that are directly attributable in manufacturing goods.)-closing stock. This will be helpful in finding the cost incurred in sales, that are matched(matching concept) with it and from which gross profit can be calculated. I.e, "Sales-Cost of goods sold is gross profit." Therefore, first two options and third option (it is not operating expences, but direct expences) cannot be true.
Then, tax and interest are of course deducted before the profit of the organization is reported to the concerned authorities. This (tax and interest) when not deducted, will be the EARNINGS BEFORE INTEREST AND TAX.(EBIT)
So hopefully, third option has to be correct.
Then, tax and interest are of course deducted before the profit of the organization is reported to the concerned authorities. This (tax and interest) when not deducted, will be the EARNINGS BEFORE INTEREST AND TAX.(EBIT)
So hopefully, third option has to be correct.
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