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Miami, FL, August 7th, 2014
* Income Statement.
Before delving into the profit and loss statement, we will
explain a sale, which involves assets. Finally the company has
Item “abc” ready for sale. We will have a double sale
transaction, the first one, paid in cash by one customer and the
other one sold under credit terms to another customer. From the
initial inventory and the second acquisition, the total of
$700.00 invested on inventory gave us 100 “abc” items ready for
sale; this means that the cost of each item is $7.00. Our
original intention was to make 50% gross profit, therefore our
selling price per item will be $14.00
The first cash sale was for 20 items totaling $280.00 and the
second sales was for 40 items under credit terms for a total of
$560.00
We need to register these two sales, but at the same time reduce
inventory, in order to do it we need to keep track of our sales
by item, so far we sold 60 and the cost per item was $7.00
totaling $420.00
This is how all transactions get registered on the company’s
books, step one sales:
Step two cost of sales and inventory.
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* Fernando Angel
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