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Understanding the cost of goods sold
In QuickBooks Pro 2008 Essential Training (www.lynda.com), instructor Suzanne Robertson explores the many powerful features of QuickBooks Pro, the popular accounting software that can be used for everything from handling personal expenditures to creating professional business account records. Suzanne covers organizing inventory and non-inventory items and using the automated EasyStep interview. She also demonstrates how to create and edit accounts, collect and pay sales tax, and handle invoices, vendor payments, and client refunds. Exercise files accompany the tutorial.
Note: QuickBooks Pro 2008 is not currently available for the Mac. If you are a Mac user you will be unable to open the exercise files for this tutorial, however you will still be able to watch the movies.
* Working with the Chart of Accounts feature
* Setting up items
* Tracking inventory items
* Using the Customer Center
* Invoicing customers
* Making client sales receipts
* Applying discounts and credits
* Entering and paying vendor bills
As we saw in the previous movie, the income statement is broken into two sections: revenue and expense. The revenue section lists all the income associated with the products and services that we sell. the expense section lists all of the expenses associated with operating your business.
In addition to revenue and expense, the income statement also contains cost of goods sold. The cost of goods sold is a figure reflecting the cost of the product or service that your business sells to generate revenue.
This expense appears on the income statement as a separate line item. The reason this expenses is kept separate is so you can track what you are making on the products and services that you sell.
To give you an example, let's say we sold a coffee mug for ten dollars, but it costs four dollars to purchase. Our revenue is ten dollars for the sale. Our cost of goods sold is four dollars. We subtract the cost of goods sold from the revenue and are left with a gross profit of six dollars or what's also known as a gross margin of 60 percent. The six dollars is the amount of money we made on the sale once we deduct the cost of the product.
In using our sample income statement we can see that our total income was $11,500. However, it cost us $1,900 to buy the items we are selling. Because we know the cost of the items, we can see that our true revenue or gross profit was only $9,600, or an 83 percent gross margin.
Click Play or press spacebar to start video
Finally, once we deduct the rest of our expenses we will know our net profit, which is the money we made for the period. As you can see, keeping track of the cost of products and services that you are selling will allow you to measure your profitability on those items.
This information will help you make smart business decisions in targeting those products and services that you sell that make you the most money
lynda.com is an award-winning provider of educational materials, including Hands-On Training instructional books, the Online Training Library, CD- and DVD-based video training, and events for creative designers, instructors, students, and hobbyists.
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As both an experienced artist and an accomplished professional in finance, Suzanne Robertson possesses a unique combination of creative and analytic talents. She utilizes her 20 years of business experience and 10 years of teaching experience, along with a distinct affinity for software, to teach complex subjects in a way that is both easy to understand and applicable to the real world.
Suzanne is happily married and lives in California, where she enjoys being a mother to two beautiful children. She works as a consultant, assisting small business owners in creating and maintaining successful financial practices.