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# Cost of Merchandise Sold

Cost of Merchandise Sold. The Big Picture. Income Statement. \$4,000. Let’s say -- Sales for the month were \$4,000. Cost of Merchandise Sold. Now …\$4,000 in sales does not mean net income… We have to take out the cost of the items we sold. \$1,400 Cost of product. \$2,600 left.

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## Cost of Merchandise Sold

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1. Cost of Merchandise Sold The Big Picture

2. Income Statement \$4,000 Let’s say -- Sales for the month were \$4,000

3. Cost of Merchandise Sold Now …\$4,000 in sales does not mean net income… We have to take out the cost of the items we sold \$1,400 Cost of product \$2,600 left \$4,000 \$4,000 - \$1,400 (Cost of Merchandise Sold) = \$2,600

4. Cost of Merchandise Sold The \$2,600 left after we pay for the product - is not clear income …we have to subtract expenses. \$1,400 Cost of product \$1,000 Expenses Expenses include selling and administrative. \$4,000 \$1,600 left Net Profit Let’s say total expenses were \$1,000

5. Let’s look at that again. \$1,400 Cost of product \$1,000 Expenses OK, Every company would like the bottom square to be the largest. \$1,600 left Net Profit

6. To increase Net Profit \$1,400 Cost of product To do that a company can a) decrease cost of product b) decrease expenses a \$1,000 Expenses b \$1,600 left Net Profit

7. Cost of Merchandise Sold We just illustrated the Income Statement... Net Sales - Cost of Merchandise Sold Equals Gross Profit Gross Profit - Expenses = Net Profit

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