Understanding COGS, Inventory, and Financial Statements
Key Financial Concepts: COGS, Inventory, and Statements
Sales revenue less COGS (Cost of Goods Sold) is called gross profit. Gross profit less operating expenses equals net income. Operating expenses appear on both income statements of merchandising and service companies. COGS appears on both single and multiple-step income statements.
Single-Step vs. Multiple-Step Income Statements
A single-step income statement reports sales revenue and other revenues and gains in the revenues section. Sales Returns
Read MoreMoney Measurement: Definitions, Classifications, and Control
Measurement of Money: Definitions and Classifications
The definition of money is widespread, and it is often said that money is everything. However, for economic analysis, we need a more precise understanding. Here’s a general classification of monetary assets:
Monetary Aggregates
- M1: Assets held by the public, including currency and demand deposits.
- M2: M1 plus savings deposits.
- M3: M2 plus term deposits.
- M4: Liquid assets in the hands of the public, including M3 plus promissory notes and treasury bills.
Understanding Accounting Principles and Practices
Accounting Principles and Practices
Assets and Liabilities
(406) Containers and packaging returnable to suppliers belong to: Assets
(407) Advances to suppliers belong to: Assets
(438) Advances to customers belong to: Assets
Group 4 accounts belong to: Current assets and current liabilities
Insurance Policy Accounting
An insurance company invoiced a customer for an annual insurance policy in November, collecting it. The closing date is December 31st every year. For that reason, at the end of the accounting
Read MoreCentral Bank Functions: Currency, Banking, and Fiscal Roles
Central Bank
1. Legal Currency Provider: The central bank is the sole issuer of a country’s legal currency. While printing may occur at mints or abroad, the central bank controls the process. Damaged notes are typically destroyed in central bank vaults.
2. Bank of Banks: The central bank acts as a lender to other banks facing temporary liquidity issues. With board approval, banks can receive short-term loans, which may be renewed. If a bank’s problems are permanent, the central bank can intervene,
Read MoreTrade Restrictions and Exchange Rates: Impact on Global Commerce
Trade Without Restrictions: Disadvantages of Restrictions
- Higher prices for consumers.
- Fewer choices for consumers.
- Protectionism often leads to retaliation, resulting in higher import prices and, consequently, higher consumer prices.
- Higher prices can lead to lower overall demand, causing job losses in other industries.
Trade With Restrictions
- Protection of national defense and citizens’ health.
- Protection against dumping.
- Potentially lower prices for consumers in specific cases.
- Protection for new and
Accounting Entries: Sales, Returns, and Adjustments
1. Credit Sale with Discount and Returnable Packaging
- A sale of goods on credit for 1,500 euros was made. The invoice includes a discount of 150 euros. The goods are contained in returnable packaging, which is billed at 200 euros.
1,798.00 | 430 | Customers [(1,350 + 200) * 1.16] | to to to | Sales of Merchandise (1,500 – 150) Packaging and Containers to be Returned by Customers Output VAT [(1,350 + 200) * 0.16] | 700 437 477 | 1,350.00 200.00 248.00 |
2. Fire Loss of Returnable Packaging
- A fire in the warehouse destroyed returnable