Word has gotten around that you know accounting and can explain it well. Jim, another of your friends has a unique business. During the summer he buys hats that cost $5.00 each and sells them at the beach for $12.00 each. Other than the cost of the hat, his only other expense last summer was $120 for parking. He sold 78 hats last summer. His accountant prepared a financial statement for him and he has several questions about the income statement. He asks:

1. What does the cost of goods sold and gross profit mean?
2. Why does the income statement indicate gross profit? Is that info I need to pay attention to?
3. What is the difference between gross profit and net income?