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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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**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 $4,000 $4,000 - $1,400 (Cost of Merchandise Sold) = $2,600**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**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**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**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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