COMPONENTS IN THE INCOME STATEMENT:

Net Revenue A

Cost of Goods B

Gross Profit C=A-B

NET REVENUE:

NET REVENUE are the list prices of the goods and/services less any discounts offered to the customer to induce purchase.

Don’t forget that these revenue is recognized in the period in which goods and services are sold, not necessarily the period in which cash is received which follow strictly to the matching and accrual accounting concept.

COST OF GOODS SOLD

COST OF GOODS comprise the TOTAL COST OF THE PRODUCT BEING SOLD.

Originally, when the manufacturer made the product, all the cost related to the product are added to the value of the inventory. When the product is sold, these costs of inventory are then expensed through the Income Statement as cost of goods sold.

GROSS PROFIT

GROSS PROFIT is simply Net Revenues less Cost of Goods Sold

The higher the gross profit margin, it means that there is a higher MARK-UP on the costs of Goods Sold .

Of course, a higher gross profit margin is favourable. Refer to my article on this.