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Free Taxes For 2012Free taxes for 2012 7. Free taxes for 2012 Figuring Gross Profit Table of Contents Introduction Items To Check Testing Gross Profit AccuracyExample. Free taxes for 2012 Additions to Gross Profit Introduction After you have figured the gross receipts from your business (chapter 5) and the cost of goods sold (chapter 6), you are ready to figure your gross profit. Free taxes for 2012 You must determine gross profit before you can deduct any business expenses. Free taxes for 2012 These expenses are discussed in chapter 8. Free taxes for 2012 If you are filing Schedule C-EZ, your gross profit is your gross receipts plus certain other amounts, explained later under Additions to Gross Profit. Free taxes for 2012 Businesses that sell products. Free taxes for 2012 If you are filing Schedule C, figure your gross profit by first figuring your net receipts. Free taxes for 2012 Figure net receipts (line 3) on Schedule C by subtracting any returns and allowances (line 2) from gross receipts (line 1). Free taxes for 2012 Returns and allowances include cash or credit refunds you make to customers, rebates, and other allowances off the actual sales price. Free taxes for 2012 Next, subtract the cost of goods sold (line 4) from net receipts (line 3). Free taxes for 2012 The result is the gross profit from your business. Free taxes for 2012 Businesses that sell services. Free taxes for 2012 You do not have to figure the cost of goods sold if the sale of merchandise is not an income-producing factor for your business. Free taxes for 2012 Your gross profit is the same as your net receipts (gross receipts minus any refunds, rebates, or other allowances). Free taxes for 2012 Most professions and businesses that sell services rather than products can figure gross profit directly from net receipts in this way. Free taxes for 2012 Illustration. Free taxes for 2012 This illustration of the gross profit section of the income statement of a retail business shows how gross profit is figured. Free taxes for 2012 Income Statement Year Ended December 31, 2013 Gross receipts $400,000 Minus: Returns and allowances 14,940 Net receipts $385,060 Minus: Cost of goods sold 288,140 Gross profit $96,920 The cost of goods sold for this business is figured as follows: Inventory at beginning of year $37,845 Plus: Purchases $285,900 Minus: Items withdrawn for personal use 2,650 283,250 Goods available for sale $321,095 Minus: Inventory at end of year 32,955 Cost of goods sold $288,140 Items To Check Consider the following items before figuring your gross profit. Free taxes for 2012 Gross receipts. Free taxes for 2012 At the end of each business day, make sure your records balance with your actual cash and credit receipts for the day. Free taxes for 2012 You may find it helpful to use cash registers to keep track of receipts. Free taxes for 2012 You should also use a proper invoicing system and keep a separate bank account for your business. Free taxes for 2012 Sales tax collected. Free taxes for 2012 Check to make sure your records show the correct sales tax collected. Free taxes for 2012 If you collect state and local sales taxes imposed on you as the seller of goods or services from the buyer, you must include the amount collected in gross receipts. Free taxes for 2012 If you are required to collect state and local taxes imposed on the buyer and turn them over to state or local governments, you generally do not include these amounts in income. Free taxes for 2012 Inventory at beginning of year. Free taxes for 2012 Compare this figure with last year's ending inventory. Free taxes for 2012 The two amounts should usually be the same. Free taxes for 2012 Purchases. Free taxes for 2012 If you take any inventory items for your personal use (use them yourself, provide them to your family, or give them as personal gifts, etc. Free taxes for 2012 ) be sure to remove them from the cost of goods sold. Free taxes for 2012 For details on how to adjust cost of goods sold, see Merchandise withdrawn from sale in chapter 6. Free taxes for 2012 Inventory at end of year. Free taxes for 2012 Check to make sure your procedures for taking inventory are adequate. Free taxes for 2012 These procedures should ensure all items have been included in inventory and proper pricing techniques have been used. Free taxes for 2012 Use inventory forms and adding machine tapes as the only evidence for your inventory. Free taxes for 2012 Inventory forms are available at office supply stores. Free taxes for 2012 These forms have columns for recording the description, quantity, unit price, and value of each inventory item. Free taxes for 2012 Each page has space to record who made the physical count, who priced the items, who made the extensions, and who proofread the calculations. Free taxes for 2012 These forms will help satisfy you that the total inventory is accurate. Free taxes for 2012 They will also provide you with a permanent record to support its validity. Free taxes for 2012 Inventories are discussed in chapter 2. Free taxes for 2012 Testing Gross Profit Accuracy If you are in a retail or wholesale business, you can check the accuracy of your gross profit figure. Free taxes for 2012 First, divide gross profit by net receipts. Free taxes for 2012 The resulting percentage measures the average spread between the merchandise cost of goods sold and the selling price. Free taxes for 2012 Next, compare this percentage to your markup policy. Free taxes for 2012 Little or no difference between these two percentages shows that your gross profit figure is accurate. Free taxes for 2012 A large difference between these percentages may show that you did not accurately figure sales, purchases, inventory, or other items of cost. Free taxes for 2012 You should determine the reason for the difference. Free taxes for 2012 Example. Free taxes for 2012 Joe Able operates a retail business. Free taxes for 2012 On the average, he marks up his merchandise so that he will realize a gross profit of 331/3% on its sales. Free taxes for 2012 The net receipts (gross receipts minus returns and allowances) shown on his income statement is $300,000. Free taxes for 2012 His cost of goods sold is $200,000. Free taxes for 2012 This results in a gross profit of $100,000 ($300,000 − $200,000). Free taxes for 2012 To test the accuracy of this year's results, Joe divides gross profit ($100,000) by net receipts ($300,000). Free taxes for 2012 The resulting 331/3% confirms his markup percentage of 331/3%. Free taxes for 2012 Additions to Gross Profit If your business has income from a source other than its regular business operations, enter the income on line 6 of Schedule C and add it to gross profit. Free taxes for 2012 The result is gross business income. Free taxes for 2012 If you use Schedule C-EZ, include the income on line 1 of the schedule. Free taxes for 2012 Some examples include income from an interest-bearing checking account, income from scrap sales, income from certain fuel tax credits and refunds, and amounts recovered from bad debts. Free taxes for 2012 Prev Up Next Home More Online Publications
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