Profit And Loss Statement 

Gross sales (--minus) Customer returns and allowance----------------------------------------------------

= Net sales(--minus) Cost of goods sold-----------------------------------------------------

= Gross Margin(--minus) Operating Expenses================================

= Profit 

Total cost of merchandise sold• Billed cost – the price at which goods are purchased and

which appears on the invoice of the vendor’s bill • Inward freight or transportation charges- the amount the

vendor may charge for the delivery of merchandise. Inward freight plus billed cost is called the billed delivered cost

• Alteration and workroom costs- the amt that selling dept may be charged for which is necessary to put the merchandise in condition for sale ( Assembling, polishing etc). It is treated as additional cost since it applies to only to the goods that have been sold and not to to all purchases.

• Cash Discounts-discounts which vendors may grant for payment of an invoice within a specified time.

Total cost of merchandise sold Billed costs(plus) Inward freight or transportation

charges=================================

Billed delivered cost(plus) Workroom costs=================================

Gross Merchandise cost(minus) Cash Discount=================================

Total cost of merchandise sold

Cost of goods sold consists of

1. Beginning inventory

Is the cost of merchandise on hand at the start of a specified period of time .The

beginning or opening inventory is the ending inventory for the previous period.

Cost of goods sold consists of

2. Gross Billed Purchases

(Billed cost)

Is the price stated on the vendors invoice prior to deducting the cash

discounts from the list price.

 

Cost of goods sold consists of

 

3. Closing Inventory

is the cost value of the merchandise on hand at the end of the accounting

period.

 

 

Cost of goods sold consists of

4.Earned Discount( cash discount)

They are a % reduction in the billed cost price of the merchandise; they are earned by the retailer

for the prompt payment of the invoice on or before the expiration of cash discount period

indicated on the invoice. Cash discount contributes to the retailers profit in the sense that the cost reduction has never been passed onto the customer. But the cost of merchandise sold has been overstated, and at this point the operating

statement must be adjusted to reflect the real value of cost of goods.

 

Cost of goods sold consists of

5. Alteration and workroom Costs

Consists of expenditure incurred in altering goods for customer and /or inventory repair. Functions of

workroom are to alter or repair merchandise sold or in stock and to prepare goods for delivery to customers. The alterations provide the form utility to complete the garment to the customer’s satisfaction, only then the transaction. The primary function of the service workroom is to provide service to the selling dept

and customer, rather than to generate income.

Cost of goods sold consists of

6. Transportation costs :-Because more companies today are geographically widening

their sources for merchandise and because shipping charges are rising, the negotiation of transportation costs and handling responsibilities is of major importance.

Transportation costs assumed by the store are considered part of the cot of the merchandise and must be covered in the retail price. Because transportation cost is become part of the cost of the merchandise,it is important that the retailer negotiates for advantageous shipping charges as a means of reducing the total cost of goods

Transportation costs

• FOB – Free on Board indicates the point at which ownership of the merchandise changes e.g. store, plant, factory, warehouse, port.

• FOB Factory-in this arrangement the retailer takes title to the merchandise at the point of the shipment(factory). The retailer takes all transportation charges and assumes all risks for the goods while in transit.

Transportation costs

• FOB Destination- this agreement states that the vendor pays all transportation costs and retains title to to the merchandise until it arrives at the place designated by the buyer. Also stated as FOB store or FOB buyer’s warehouse.

Transportation costs

• FOB Shipping (consolidation) point. This agreement means that the vendor pays any crating and transportation costs for getting the goods to the shipping company that will transport the goods to the retailer.

• The retailer takes ownership of the goods at the point and is responsible for the cost of getting the goods to the store or receiving point.

Transportation costs

• FOB Destination,(Charges Reversed). This agreement indicates that the vendor owns the goods until they get to the buyer’s designated point,however the retailer agrees to pay the transportation.

Transportation costs

• In most cases the transportation charges must be prepaid. This means transportation costs are paid by the vendor when the merchandise is delivered to the carrier such as UPS, a freight forwarder, etc.

• When the merchandise is FOB Factory and freight has been prepaid, the retailer reimburses the vendor for the shipping charges to he cost of the merchandise. The amount remitted to the vendor equals the net cost of merchandise plus the cost of transportation

Problem 1

• Merchandise with total quoted cost of $1312 was billed on an invoice dated March 18 with terms of8/10 EOM, anticipation not permitted, FOB Factory. Transportation costs of $12.87 were prepaid. How much should be remitted to the vendor if the invoice is paid April 10?

Solution 1

$1312 less 8% = $1207.04

(plus) transportation + 12.87

==========================

Amount to be repaid = $1219.91

Problem 2

• An invoice for $2500 was dated June 15 with terms of 6/10,n/30 anticipation not permitted. FOB Store. Freight charges were $265. What amount was to be remitted if the retailer paid the bill on June 24?

Solution 2

• FOB store means the vendor is responsible for the transportation costs.

• $2500 less 6% = $2350

• Amount to be paid = $2350

• The retailer does not reimburse the vendor for transportation.

Problems1. An invoice for costume jewelry is dated October

22 with terms of 3/10,n/30, FOB Providence, Rhode island (vendors warehouse). The total billed cost of the merchandise is $956.20 and shipping charges of $12.80 have been prepaid. If the invoice is paid on Nov 10, how much is remitted?

2. Merchandise with a total billed cost of $2230 arrived at the store on May 16. Terms of the invoice dated April 25 were 3/10 ROG, FOB store.

no anticipation permitted. Transportation charges were $128. If paid on May 21, how much should be remitted?

Problems

3.A sportswear buyer receives a shipment of 40 dozen pairs of pants costing $21each. The invoice is dated April 29 with terms 6/10 EOM, FOB store. No anticipation permitted. Shipping charges are $182. If the bill was paid on May11, how much is remitted?

Problems

4. A hosiery manufacturer in North Carolina has agreed to extend the dating so that the retailer can use a cheaper but slower method of transportation. Rather than the customary terms of 2/10, terms of 2/10-30x, anticipation permitted, have been agreed upon. Transportation is FOB factory. Merchandise with a billed cost of $987.40 was shipped on April 14 with transportation charges of $14.80 prepaid. If the invoice is paid on May 10, how much is remitted?

Operating Expenses

Various expenses are incurred by the operation of the

business. If expenses exceed gross margin a loss occurs.

There are primarily 2 ways of classifying expenses: -

Direct expenses

Indirect expenses

Operating Expenses

Direct expenses are the result of the operation of one specific dept and would not occur if the dept were eliminated. E.g. salaries of sales personnel, dept advertising, selling supplies, buyer’s salaries,advertising, selling supplies, delivery to customers, buyer’s travel, and rental space for the dept.

 

Operating Expenses

Indirect expenses benefit the store as a whole and would continue even if a particular dept were discontinued. E.g. store maintenance, insurance, depreciation of equipment, salaries of senior executives, and institutional advertising.