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</style><table class="sidebar sidebar-collapse nomobile nowraplinks accounting"><tbody><tr><td class="sidebar-pretitle">Part of a series on</td></tr><tr><th class="sidebar-title-with-pretitle"><a href="Accounting" title="Accounting">Accounting</a></th></tr><tr><td class="sidebar-image"><span class="notpageimage" typeof="mw:File"></span></td></tr><tr><td class="sidebar-above">
<div class="hlist"><ul><li><a href="Constant_purchasing_power_accounting" title="Constant purchasing power accounting">Constant purchasing power</a></li><li><a href="Historical_cost" title="Historical cost">Historical cost</a></li><li><a href="Management_accounting" title="Management accounting">Management</a></li><li><a href="Tax_accounting_in_the_United_States" title="Tax accounting in the United States">Tax</a></li></ul></div></td></tr><tr><td class="sidebar-content">
<div class="sidebar-list mw-collapsible mw-collapsed noborder"><div class="sidebar-list-title" style="color: var(--color-base)">Major types</div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Audit" title="Audit">Audit</a></li><li><a href="Budget" title="Budget">Budget</a></li><li><a href="Cost_accounting" title="Cost accounting">Cost</a></li><li><a href="Forensic_accounting" title="Forensic accounting">Forensic</a></li><li><a href="Financial_accounting" title="Financial accounting">Financial</a></li><li><a href="Fund_accounting" title="Fund accounting">Fund</a></li><li><a href="Governmental_accounting" title="Governmental accounting">Governmental</a></li><li><a href="Management_accounting" title="Management accounting">Management</a></li><li><a href="Social_accounting" title="Social accounting">Social</a></li><li><a href="Tax_accounting" class="mw-redirect" title="Tax accounting">Tax</a></li></ul></div></div></div></td>
</tr><tr><td class="sidebar-content">
<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)">Key concepts</div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Accounting_period" title="Accounting period">Accounting period</a></li><li><a href="Accrual" title="Accrual">Accrual</a></li><li><a href="Constant_purchasing_power_accounting" title="Constant purchasing power accounting">Constant purchasing power</a></li><li><a href="Economic_entity" title="Economic entity">Economic entity</a></li><li><a href="Fair_value" title="Fair value">Fair value</a></li><li><a href="Going_concern" title="Going concern">Going concern</a></li><li><a href="Historical_cost" title="Historical cost">Historical cost</a></li><li><a href="Matching_principle" title="Matching principle">Matching principle</a></li><li><a href="Materiality_(auditing)" title="Materiality (auditing)">Materiality</a></li><li><a href="Revenue_recognition" title="Revenue recognition">Revenue recognition</a></li><li><a href="Unit_of_account" title="Unit of account">Unit of account</a></li></ul></div></div></div></td>
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<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)">Selected accounts</div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Asset" title="Asset">Assets</a></li><li><a href="Cash" title="Cash">Cash</a></li><li><a href="Cost_of_goods_sold" title="Cost of goods sold">Cost of goods sold</a></li><li><a href="Depreciation" title="Depreciation">Depreciation</a> / <a href="Amortization_(business)" class="mw-redirect" title="Amortization (business)">Amortization (business)</a></li><li><a href="Equity_(finance)" title="Equity (finance)">Equity</a></li><li><a href="Expense" title="Expense">Expenses</a></li><li><a href="Goodwill_(accounting)" title="Goodwill (accounting)">Goodwill</a></li><li><a href="Liability_(financial_accounting)" title="Liability (financial accounting)">Liabilities</a></li><li><a href="Profit_(accounting)" title="Profit (accounting)">Profit</a></li><li><a href="Revenue" title="Revenue">Revenue</a></li></ul></div></div></div></td>
</tr><tr><td class="sidebar-content">
<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)"><a href="Accounting_standard" title="Accounting standard">Accounting standards</a></div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Generally_accepted_accounting_principles" class="mw-redirect" title="Generally accepted accounting principles">Generally-accepted principles</a></li><li><a href="Generally_accepted_auditing_standards" class="mw-redirect" title="Generally accepted auditing standards">Generally-accepted auditing standards</a></li><li><a href="Convergence_of_accounting_standards" title="Convergence of accounting standards">Convergence</a></li><li><a href="International_Financial_Reporting_Standards" title="International Financial Reporting Standards">International Financial Reporting Standards</a></li><li><a href="International_Standards_on_Auditing" title="International Standards on Auditing">International Standards on Auditing</a></li><li><a href="Management_Accounting_Principles" class="mw-redirect" title="Management Accounting Principles">Management Accounting Principles</a></li></ul></div></div></div></td>
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<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)"><a href="Financial_statement" title="Financial statement">Financial statements</a></div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Annual_report" title="Annual report">Annual report</a></li><li><a href="Balance_sheet" title="Balance sheet">Balance sheet</a></li><li><a href="Cash_flow_statement" title="Cash flow statement">Cash-flow</a></li><li><a href="Statement_of_changes_in_equity" title="Statement of changes in equity">Equity</a></li><li><a href="Income_statement" title="Income statement">Income</a></li><li><a href="Management_discussion_and_analysis" class="mw-redirect" title="Management discussion and analysis">Management discussion</a></li><li><a href="Financial_statement_analysis" title="Financial statement analysis">Financial statement analysis</a></li></ul></div></div></div></td>
</tr><tr><td class="sidebar-content">
<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)"><a href="Bookkeeping" title="Bookkeeping">Bookkeeping</a></div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Bank_reconciliation" title="Bank reconciliation">Bank reconciliation</a></li><li><a href="Debits_and_credits" title="Debits and credits">Debits and credits</a></li><li><a href="Double-entry_bookkeeping_system" class="mw-redirect" title="Double-entry bookkeeping system">Double-entry system</a></li><li><a href="FIFO_and_LIFO_accounting" title="FIFO and LIFO accounting">FIFO and LIFO</a></li><li><a href="General_journal" title="General journal">Journal</a></li><li><a href="Ledger" title="Ledger">Ledger</a> / <a href="General_ledger" title="General ledger">General ledger</a></li><li><a href="Trial_balance" title="Trial balance">Trial balance</a></li></ul></div></div></div></td>
</tr><tr><td class="sidebar-content">
<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)"><a href="Audit" title="Audit">Auditing</a></div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Financial_audit" title="Financial audit">Financial</a></li><li><a href="Internal_audit" title="Internal audit">Internal</a></li><li><a href="Accounting_networks_and_associations" class="mw-redirect" title="Accounting networks and associations">Firms</a></li><li><a href="Auditor's_report" title="Auditor's report">Report</a></li><li><a href="Sarbanes%E2%80%93Oxley_Act" title="Sarbanes–Oxley Act">Sarbanes–Oxley Act</a></li></ul></div></div></div></td>
</tr><tr><td class="sidebar-content">
<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)">People and organizations</div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Accountant" title="Accountant">Accountants</a></li><li>Accounting organizations</li><li><a href="Luca_Pacioli" title="Luca Pacioli">Luca Pacioli</a></li></ul></div></div></div></td>
</tr><tr><td class="sidebar-content">
<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)">Development</div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="History_of_accounting" title="History of accounting">History</a></li><li><a href="Accounting_research" title="Accounting research">Research</a></li><li><a href="Positive_accounting" title="Positive accounting">Positive accounting</a></li><li><a href="Sarbanes%E2%80%93Oxley_Act" title="Sarbanes–Oxley Act">Sarbanes–Oxley Act</a></li></ul></div></div></div></td>
</tr><tr><td class="sidebar-content">
<div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="color: var(--color-base)">Misconduct</div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"><ul><li><a href="Creative_accounting" title="Creative accounting">Creative</a></li><li><a href="Earnings_management" title="Earnings management">Earnings management</a></li><li><a href="Error_account" title="Error account">Error account</a></li><li><a href="Hollywood_accounting" title="Hollywood accounting">Hollywood</a></li><li><a href="Off-balance-sheet" title="Off-balance-sheet">Off-balance-sheet</a></li><li><a href="Two_sets_of_books" title="Two sets of books">Two sets of books</a></li></ul></div></div></div></td>
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<p>The <b>trading statement</b> is an expanded version of sales portion of the <a href="Income_statement" title="Income statement">Income statement</a>. The trading statement's main objective is to determine sales, <a href="Cost_of_goods_sold" title="Cost of goods sold">cost of sales</a> and <a href="Gross_income" title="Gross income">gross profit</a>.<sup id="cite_ref-1" class="reference"><a href="#cite_note-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> The trading statement is part of effective book keeping within the <a href="Accounting_ethics" title="Accounting ethics">accounting discipline</a>.
</p>
<meta property="mw:PageProp/toc">
<div class="mw-heading mw-heading2"><h2 id="Primary_formula">Primary formula</h2></div>
<p>Sales - Cost of Sales = Gross Profit
</p>
<div class="mw-heading mw-heading2"><h2 id="Cost_of_sales">Cost of sales</h2></div>
<p>The main parts of a cost of sales calculation consists of:
</p>
<ul><li>Opening <a href="Inventory" title="Inventory">inventories</a> (The amount of inventories that the entity has on hand from the previous year)</li>
<li>+ Purchases (The amount of inventories that the entity purchases over the course of the year)</li>
<li>= Goods available for sale (Opening inventories + Purchases +/- other items)</li>
<li>- Closing inventories (Inventory on hand at the end of the year)</li></ul>
<div class="mw-heading mw-heading2"><h2 id="Example">Example</h2></div>
<ul><li>Question:</li></ul>
<p>A business entity purchases £10400 worth of equipment in order to construct <a href="Computer" title="Computer">computers</a>. During the financial year, £1400 worth of equipment is returned to the entity by its customers as the equipment was determined to be faulty. The previous <a href="Fiscal_year" title="Fiscal year">financial year</a>, the entity had £3000 worth of equipment left over. The entity makes use of a <a href="Trucking_industry_in_the_United_States" title="Trucking industry in the United States">trucking</a> company to deliver all of its goods. The trucking company charges the entity £120 for the year to deliver the equipment. The entity sold £14500 worth of items during the year to various customers. The entity checked its inventory stock levels at the end of the year and determined that there was £2000 worth of inventories left over.
</p>
<ul><li>Solution:</li></ul>
<p><b>Sales calculation:</b>
</p><p>Sales = Sales for the year - Returns in (Goods that were returned to the entity during the course of the year)<br>
Sales = £14500 - £1400<br>
Sales = £13100
</p><p><b>Cost of sales calculation:</b>
</p>
<table class="wikitable">
<tbody><tr>
<th>Cost of sales</th>
<th>£
</th></tr>
<tr>
<td>Opening inventories</td>
<td>£3000
</td></tr>
<tr>
<td>+ Purchases</td>
<td>£10400
</td></tr>
<tr>
<td>+ Freight (in)</td>
<td>£120
</td></tr>
<tr>
<td>= Goods available for sale</td>
<td>£13520
</td></tr>
<tr>
<td>- Closing inventories</td>
<td>(£2000)
</td></tr></tbody></table>
<p>Therefore, Cost of sales = Goods available for sale - Closing inventory<br>
Cost of sales = £13520 - £2000<br>
Cost of sales = £11520
</p><p><b>Gross profit calculation:</b>
Gross profit = Sales - Cost of sales<br>
Gross profit = £13100 - £11520<br>
Gross profit = £1580
</p>
<div class="mw-heading mw-heading2"><h2 id="Ratio_calculation">Ratio calculation</h2></div>
<p>Often, information in the trading statement is left out and it is up to the <a href="Bookkeeping" title="Bookkeeping">bookkeeper</a> to determine the missing value. This is a very popular bookkeeping examination type question. The best way to go about solving the unknown variable being either sales, cost of sales, or gross profit is to make use of a ratio calculation.
</p>
<div class="mw-heading mw-heading3"><h3 id="Want/Have_method">Want/Have method</h3></div>
<p>Using the example above, we can clearly determine all three variables (sales, cost of sales, and gross profit), as all of the information is provided in the question. If for instance, the question did not stipulate both the sales and the cost of sales figures, though the gross profit figure was given, a ratio calculation can then be performed.<br>For a ratio calculation, the question will have additional information regarding the mark-up percentages of the sales, cost of sales, and gross profit figures.
</p>
<div class="mw-heading mw-heading2"><h2 id="References">References</h2></div>
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</style><cite class="citation web cs1"><a rel="nofollow" class="external text" href="http://education.qld.gov.au/finance/procedure/pandc/procedures/trading.html">"Trading statements"</a>. <i>Finance - Procedures and processes</i>. DET Education<span class="reference-accessdate">. Retrieved <span class="nowrap">28 August</span> 2011</span>.</cite></span>
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