The Trading Account Vocabulary Inventories and stocks are raw materials or goods that have been acquired by the firm for future sale but have not yet been sold. Revenues are monies from the sale of goods, or Price x Quantity Sales can be a money value or a unit depending on context but revenues are always a money amount The trading account shows GROSS PROFIT, it is the first section of the income Statement Gross indicates that nothing has been subtracted. Gross Profit is profit without any subtractions, Le. with expenses still included. When compared with revenue, it indicates the role or impact of direct costs on business profits. Gross profit is the difference between the sales revenue and the cost to the business of its sales Revenues from Sales minus Cost of Goods equals Gross Profit Revenue from sales is the income earned from the sale of goods (trading activity). Cost of sales means the direct costs needed to earn the revenues. Cost of goods has effectively the same meaning as cost of sales. The two terms are used interchangeably, both refer to direct costs. Cost of goods is the direct cost of producing or buying the goods sold during the period. Opening Stock plus New Stock minus Closing Stock equals Cost of Goods $3000x Problem Set 1 a. A business has inventories (stock) worth $700 at the start of a trading period. It purchased $300 additional inventories. At the end of the period it had $200 worth of inventories. What is CoGs? b. A business used $1000 worth of materials and paid workers $1500 to earn $5000 during a trading period. What is Cos? A firm valued its opening stock at $3000 and made additional purchases of $1000 during the period that followed. If its CoGs was $2000, what is the value of closing inventory? d. A business had opening inventories of $20 000 and purchased $5 000 new items. The closing inventory was $7000. If it had sales revenues of $15 000, what was CoGs? What gross profit was earned during the period? e. A business had closing inventories of $2 000 and opening inventories of $3000 with additional purchases of $500 made during the period. Sales of $1000 were booked, how much Gross Profit did the firm make?