College Accounting (Book Only): A Career Approach
College Accounting (Book Only): A Career Approach
13th Edition
ISBN: 9781337280570
Author: Scott, Cathy J.
Publisher: South-Western College Pub
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Textbook Question
Chapter 12, Problem 1QY

What is the term used for the profit on a sale before any operating expenses have been deducted?

  1. a. Net Income
  2. b. Net Profit
  3. c. Gross Profit
  4. d. Gain on Sale
  5. e. All of the above
Expert Solution & Answer
Check Mark
To determine

Find the correct option that indicates the correct term for the given explanation.

Answer to Problem 1QY

The correct answer is option (c).

Explanation of Solution

Gross profit: Gross profit is the amount of revenue earned from goods sold over the costs incurred for the goods sold.

Formula to compute gross profit:

Gross profit = Net sales – Cost of goods sold

Justification for correct answer: Gross profit is the difference between net sales and cost of goods sold. The amount of cost of merchandise sold during a certain period is referred to as cost of goods sold. Cost of goods sold does not include any operating expenses. So, gross profit is the revenue generated from sales over the cost of goods sold, before any operating expenses are incurred. Hence, option (c) is correct.

Justification for incorrect answers:

  • Option (a) is incorrect because net income is the difference between total revenues and total expenses of a business.
  • Option (b) is incorrect because net income or net profit is the difference between total revenues and total expenses of a business.
  • Option (d) is incorrect because gain on sale is the amount realized on sale transaction, when the sale proceeds is more than the book value of the asset on the date of sale.
  • Option (e) is incorrect because option (c) is the correct answer and the phrase ‘all of the above’ is incorrect.
Conclusion

Therefore, option (c) is correct answer.

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Students have asked these similar questions
Gross profit is equal to Select one: a.  revenues - expenses b. sales - cost of goods sold c. profits plus depreciation d. earnings before taxes minus taxes payable
What type of expenses are deducted as a part of gross profit? A)"Cost of goods sold" only B)"Selling, general and administrative" only C)"Cost of goods sold" and "Selling, general and administrative expense" D)"Cost of goods sold", "Selling, general and administrative expense" and E)"Interest expense"
Other income is   a. added to operating income. b. deducted from operating income. c. added to gross profit. d. deducted from sales.

Chapter 12 Solutions

College Accounting (Book Only): A Career Approach

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