Multiple Choice: Circle The Correct Answer.
Sales Revenue Less Cost Of Goods Sold Is Called
A. Gross Profit.
B. Net Profit.
C. Net Income.
D. Marginal Income.
Cost Of Goods Sold Is Determined Only At The End Of The Accounting Period In
A. A Perpetual Inventory System.
B. A Periodic Inventory System.
C. Both A Perpetual And A Periodic Inventory System.
The Correct Answer and Explanation is:
Correct Answers:
1. Sales Revenue Less Cost Of Goods Sold Is Called:
✅ A. Gross Profit
2. Cost Of Goods Sold Is Determined Only At The End Of The Accounting Period In:
✅ B. A Periodic Inventory System
Detailed Explanation (300+ words):
1. Sales Revenue Less Cost Of Goods Sold Is Called Gross Profit (A)
Gross profit is a key financial metric that represents the profitability of a company’s core business activities. It is calculated by subtracting Cost of Goods Sold (COGS) from Sales Revenue. In equation form:
Gross Profit = Sales Revenue – Cost of Goods Sold
Sales revenue refers to the total amount of income generated from selling goods or services before any expenses are deducted. COGS includes all the direct costs related to the production or purchase of the goods sold during a specific period—this includes raw materials, labor costs, and manufacturing overhead.
Gross profit helps assess how efficiently a company produces and sells its products. It does not account for operating expenses like rent, salaries, or utilities—that’s the domain of net profit or net income. Net income, which is often referred to as the “bottom line,” is calculated by subtracting all expenses (including taxes and interest) from the gross profit.
“Marginal income” is not a common accounting term. Sometimes, “contribution margin” or “marginal profit” is used in managerial accounting to describe the income from selling one additional unit, but that’s not the correct context here.
2. Cost Of Goods Sold Is Determined Only At The End Of The Accounting Period In A Periodic Inventory System (B)
There are two main types of inventory accounting systems: perpetual and periodic.
In a periodic inventory system, the business does not keep real-time records of inventory. Instead, inventory is physically counted at the end of the accounting period (e.g., month or year), and the COGS is calculated retrospectively using the formula:
COGS = Beginning Inventory + Purchases – Ending Inventory
This method is simpler but less accurate for day-to-day inventory tracking.
In contrast, a perpetual inventory system continuously updates inventory and COGS with each sale or purchase, providing real-time inventory levels.
Therefore, since COGS is only determined at the end of the period in the periodic system, the correct answer is B.