Barry is a sole trader. He has calculated a cost of sales figure for the year, which is $342,000. Barry paid $8,030 into the business bank account for goods withdrawn for private use and this amount has been included within sales. The figure of $8,030 was calculated by adding a mark-up of 10% to the cost of the goods. His gross profit margin on all other goods sold was 20% of sales.
What is the total figure of sales for the year?
I wish to know the double entries plus the elaborate workings that are made to arrive at the calculation.
My workings are:
$8030 is not a sale. The way to handle it is to transfer the cost of the goods from purchases to drawings.
The goods must have cost 8030 x 100/110 = 7,300 (7300 + 10% = 8030)
This amount should be taken out of purchases and that would leave cost of sales at 342,000 – 7300 = 334700
These had a profit margin of 20% of sales:
Cost + Profit = sales
80 + 20 = 100 [Note 20/100 = GP = 20%)
Therefore sales = 334700 x 100/80 = 418,375.
Thank you so much for the instant reply.
I got to know that interest on drawings are added to net profit while arriving for appropriation of profits. Why is it added instead being deducted?
Because the partner who makes drawings, say early in the year, is taking money from the partnership and this would disadvantage partners who hadn’t made drawings. Therefore, that partner should pay interest into the partnership.
You must be logged in to reply to this topic.