Question

Samz Off-Road Rage is a motorcycle shop that caters to off-road sports. The store carries top brand off-road motorcycles, and parts and accessories in addition to helmets, boots, safety equipment, clothing, and small items like stickers and flashlights. It imports KTM motorcycles directly from Austria, Husqvarna motorcycles from Sweden, and Ducati motorcycles from Italy, and carries the top US brands as well. Sam pays an import facilitator to handle all of the importing paperwork, pick up the motorcycles, and pay any fees that may be due. Sam is required to reimburse the company for the fees. Sam’s shop is on a main street near an auto mall and industrial area. Sam pays monthly rent and utilities, and pays for a business license, security system, cleaning service, accounting service, all store supplies and display materials, and has six employees. His monthly profit is about $50,000. On an income statement, where would the rent, utilities, business license, security system, cleaning service, accounting service, supplies, display materials and payroll be found?

Answer 1

Answer:

Samz Off-Road Rage

On an income statement, the following will be found as indicated below:

The Rent, Utilities, Business License, Security System, Cleaning Service, Accounting Service,  and Payroll will be found on the expenses side.  They are deducted from gross profit to get the net profit or income.

The  Supplies and Display Materials will be found on Cost of Goods Sold side.  They used to determine the gross profit.

Explanation:

Expenses relate to costs incurred for running a business.  Examples are rent and workers' salaries and wages.  In order to keep a business open to customers, they must be incurred.

By their nature, they are fixed costs to a large extent.  With the matching principle, they must be subtracted from net revenue in order to determine the period's operating profit.

All store supplies and display materials relate directly to the cost of goods sold.  They are costs incurred in order to have goods available for sale.  They determine the gross profit of an entity.