Gross Profit Calculation

Gross Profit is calculated by subtracting cost of sales from net sales. It can be calculated using the following formula:
Gross profit = Net sales - Cost of goods sold
Net sales (or Net turnover) = Total sales – Sales returns and allowances
Cost of goods sold = Opening stock + Net Purchases - Closing stock

Example 1:
Calculate the gross profit, given the following information:
Sales $78,000
Sales returns $6,000
Opening stock $50,000
Purchases $20,000
Purchases returns $5,000
Closing stock $30,000

Solution:
Net sales = 78,000 - 6,000 = $72,000
Net Purchases = 20,000 - 5,000 = $15,000
Cost of goods sold = 50,000 + 15,000 - 30,000 = $35,000
Gross profit = Net sales - Cost of goods sold = 72,000 - 35,000 = $37,000

Example 2:
CTU Ltd has the following data:
Sales $60,000
Sales returns $20,000
Cost of sales $45,000

Then,
Net sales = 60,000 - 20,000 = $40,000
Gross profit / loss = Net sales - Cost of sales = 40,000 - 45,000 = -$5,000 (loss)
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