Acca financial Accounting (FA) Study Text ac ca (FA)

Chapter 6 

KAPLAN PUBLISHING

 

95 

The standard proforma for calculating sales, cost of sales and gross profit is 

illustrated below: 

 $ 

$ 

Revenue  

X 

Opening inventory 

X 

 

Purchases X 

 

Less: Closing inventory 

(X) 

 

 ––––– 

 

Cost of sales 

 

(X) 

  

––––– 

Gross profit 

 

X 

  

––––– 

Consider a business entity that has some items of inventory left over from the 

previous year. It then adds to this by purchasing more inventories for the year 

ahead. It then uses this pool of inventory to manufacture its products, which it 

will sell to generate sales revenue. At the end of the year there is likely to be 

some inventory left over to sustain the business in the future. 

When calculating gross profit we match the revenue generated from the sales of 

goods in the year with the costs of manufacturing those goods. You should 

appreciate that the costs of the unused inventories should not be included in 

this figure. These costs are carried forward into the next accounting period 

where they will be used to manufacture goods that are sold in that period. 

The goods carried forward are classified as assets on the statement of financial 

position.