ZIMSEC O Level · Principles of Accounts · Form 3, Form 4
The income statement (trading and profit and loss account)
- Cost of sales = opening inventory + purchases (+ carriage inwards − purchases returns) − closing inventory.
- Net sales = sales − sales returns.
- Gross profit = net sales − cost of sales.
- Profit for the year = gross profit + other income − expenses.
Worked example: Sales 50 000; opening inventory 4 000; purchases 30 000; closing inventory 6 000; expenses 9 500. Find the gross profit and profit for the year.
Cost of sales = 4 000 + 30 000 − 6 000 = 28 000
Gross profit = 50 000 − 28 000 = 22 000
Profit = 22 000 − 9 500 = 12 500
The statement of financial position
- Non-current assets, then current assets (inventory, receivables, bank, cash).
- Capital: opening capital + profit − drawings = closing capital.
- Non-current and current liabilities.
Ratios
Gross margin = gross profit ÷ net sales × 100%. Mark-up = gross profit ÷ cost of sales × 100%.
Exam tip: Carriage inwards goes in cost of sales; carriage outwards is an expense in the profit section.
Check yourself
- Opening inventory 2 000, purchases 15 000, closing inventory 3 000. Find the cost of sales.
- Where is carriage outwards shown?
- Opening capital 20 000, profit 6 000, drawings 4 000. Find closing capital.
Show answers
- 14 000
- As an expense in the profit and loss section.
- 22 000
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