skip navigation

Search Help
Navigation Help


Main Topics
A B C D E F G H I
J K L M N O P Q R
S T U V W X Y Z #


FAQs
Forms
Publications
Tax Topics


Comments
About Tax Map

previous page Previous Page: Publication 334 - Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) - Figuring Gross Profit
next page Next Page: Publication 334 - Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) - Additions to Gross Profit
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication
taxmap/pubs/p334-020.htm#en_us_publink100025306

Testing Gross 
Profit Accuracy(p30)


rule
spacer

Testing Gross Profit Accuracy

If you are in a retail or wholesale business, you can check the accuracy of your gross profit figure. First, divide gross profit by net receipts. The resulting percentage measures the average spread between the merchandise cost of goods sold and the selling price.
Next, compare this percentage to your markup policy. Little or no difference between these two percentages shows that your gross profit figure is accurate. A large difference between these percentages may show that you did not accurately figure sales, purchases, inventory, or other items of cost. You should determine the reason for the difference.
taxmap/pubs/p334-020.htm#en_us_publink100025307

Example.(p30)
spacer

Joe Able operates a retail business. On the average, he marks up his merchandise so that he will realize a gross profit of 331/3% on its sales. The net receipts (gross receipts minus returns and allowances) shown on his income statement is $300,000. His cost of goods sold is $200,000. This results in a gross profit of $100,000 ($300,000 − $200,000). To test the accuracy of this year's results, Joe divides gross profit ($100,000) by net receipts ($300,000). The resulting 331/3% confirms his markup percentage of 331/3%.
previous pagePrevious Page: Publication 334 - Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) - Figuring Gross Profit
next pageNext Page: Publication 334 - Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) - Additions to Gross Profit
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication