The ‘cost of goods’ includes the purchase price of the goods plus expenses relating to purchase of goods and brining the goods to the place of business. In order to calculate the cost of goods ” we should deduct from the total cost of goods purchased the cost of goods in hand. We can study this phenomenon with the help of following formula:Opening stock + cost of purchases closing stock = cost of salesAs already discussed that the purpose of preparing trading account is to calculate the gross profit of the business.
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