So, our Business Math lessons started last week and I never thought that Business Math has a huge relevance to my course. I've realized that I'll be using this in the near future. Prof. Paner has taught us the basics in Business Math. The terms you'll mostly encounter with your business and while studying this subject. Let me share you a few things that I've learned in our first week!
Profit and Loss
Profit is the amount by which the sales are greater than the cost of goods sold and the operating expenses. Margin also means gain or profit.
The formulas in computing profit are as follows;
Net Sales = Gross Sales – Refunds and Allowances
Net Profit = Gross Profit – Operating Expenses
The net sales and profit may also be given in scheme diagram as follows:
- Sales Returns and Allowances
- Costs of Goods Sold
- Operating Expenses
1. Gross Sales is the actual amount received for selling the goods.
2. Refunds are amounts returned usually if goods are defective.
3. Net sales are obtained when refunds are being deducted from the gross sales.
4. Costs of goods sold or buying price is the amount paid for articles bought including the buying expenses.
To compute for the cost of goods sold for a period of time, we have the formula as follows:
Available Goods = Beginning Inventory + Purchases Costs of Goods Sold = Available Goods – Ending Inventory
The above may be diagrammed as follows:
Beginning Inventory + Purchases Goods For Sale - Ending Inventory Costs of Goods Sold
5. Inventory is an itemized lists of goods on hand.
6. Gross Profit is the difference between the net sales and the cost of goods sold.
7. Operating expenses or overhead are selling expenses such as salaries or wages, traveling expenses, rentals, water, electric bills, commissions, taxes.
8. Net Profit is the amount obtained when all the selling expenses or other cost of doing business are deducted from the gross profit.
In case the sales are less than the cost of goods sold, there is a loss. The formulas in computing losses are as follows:
Gross Loss = Costs of Goods Sold – Net Sales Net Loss = Gross Loss + Operating Expenses
The relationship of the terms of loss may be diagrammed schematically as follows:
Cost of Goods Sold - Net Sales Gross Loss + Operating Expenses Net Loss
That's a lot to take in right? But I think this will help me a lot in understanding business.:)
Watch out for my next post!