prepare a multi-step Income Statement for a retail business

MULTI-STEP INCOME STATEMENT Column #: 1 2 3 4 SALES REVENUE Gross Sales Less: Returns & Allowances Sales Discounts NET SALES $720,185 -6,140 -5,790 -11,930 $708,255 $59,700 COST OF MERCHANDISE SOLD: Merchandise Beginning Inventory Purchases Less: Returns & Allowances Purchase Discounts Net Purchases Add: Freight costs Cost of Merchandise Purchased (COMP) MERCHANDISE AVAILABLE FOR SALE (B! + COMP) Less: Merchandise Ending Inventory COST OF MERCHANDISE SOLD GROSS PROFIT: 521,980 -9,100 -2,525 -11,625 510,355 17.400 527.755 587,455 -62,150 -525,305 182,9501 LESS: OPERATING EXPENSES: Selling Expenses: Sales salaries Advertising Depreciation expense-equipment Delivery expense Miscellaneous expenses 53,430 10,860 3,100 2,800 630 -70,820 Administrative Expenses: Office Salaries Rent Depreciation expense-equipment Insurance expense Office supplies expenses Miscellaneous administrative expenses TOTAL OPERATING EXPENSES INCOME AFTER OPERATIONS: 21,020 8,100 2,490 1,910 610 760 -34,890 -105, 710 77,240 OTHER INCOME AND EXPENSES: Rent revenue Interest rexpenses NET INCOME BEFORE TAX: 600 -2.440 -1,840 75,400 MULTI-STEP INCOME STATEMENT MERCHANDISE ACCOUNTING Calculation Steps for Gross Profit NET SALES = SALES - RETURNS - ALLOWANCES - SALES DISCOUNTS NET PURCHASES = BEGINNING INVENTORY + PURCHASES -RETURNS - ALLOWANCES - PURCHASE DISCOUNTS COST OF MERCHANDISE PURCHASED = NET PURCHASES + FREIGHT MERCHANDISE AVAILABLE FOR SALE = BEGINNING INVENTORY + COST OF MERCHANDISE PURCHASED COST OF MERCHANDISE SOLD = COST OF MERCHANDISE AVAILABLE FOR SALE - ENDING INVENTORY GROSS PROFIT = NET SALES - COST OF MERCHANDISE SOLD Calculation of Operation Expenses TOTAL OPERATING EXPENSESS = Selling expenses + Administrative expenses Calculation of Income from Operatons INCOME FROM OPERATION = GROSS PROFIT - TOTAL OPERATING EXPENSES Calculation of Net Income before Tax NET INCOME BEFORE TAX = Income from Operations + Miscellaneous Revenue - Miscellaneous Expenses OTHER IMPORTANT INFORMATON TO KNOW: (1) PERPETUAL SYSTEM: Inventories and cost of Merchandise Sold (COMS) amounts are updated in computer with each transaction PERIODIC SYSTEM: Inventaries and Cost of Merchandise Sold (COMS) amounts are updated at end of period (usually end of month). (2) FREIGHT CHARGES: FOB "Free on Board" or "Freight on Board" FOB DESTINATION: SELLER PAYS FREIGHT FOB SHIPPING POINT: BUYER PAYS FREIGHT (3) CREDIT CARD TRANSACTIONS MasterCard and Visa are treated as "cash" sales because they are normally processed through a clearing-house that contacts the bank that issued the card. American Express may be treated as "cash" if a clearing house is used by the retailer or as "Accounts Receivable" if sent direct to AMX. (4) SALES AND PURCHASE DISCOUNTS: 2/10,n30 = 2% if paid within ten days; net due in 30 days n/30 net due in thirty days