Abbey Co. sold merchandise to Gomez Co. on account, $25,700, terms 2/15, net 45. The cost of the goods sold was $14,731. Abbey Co. issued a credit memo for $3,100 for merchandise returned that originally cost $1,458. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

Abbey Co.

Amount of gross profit earned by Abbey Co:

Net Sales =            $22,600

Cost of goods sold  13,273

Gross profit            $8,327

Explanation:

a) Data and Calculations:

Sales = $25,700

Sales returns = 3,100

Net Sales = $22,600

Cost of goods sold =               $14,731

Inventory returned                     1,458

Adjusted cost of goods sold $13,273

The gross profit is a function of sales revenue and cost of good sold.  It is the first profit that is determined in the income statement.  It tells the efforts of management to turn sales revenue into some profits, which will be used to offset the period's expenses before the net income could be arrived at.