Question

In order to calculate cost of revenue from operations, if sales return, purchases, wages, opening stock and closing stock is given, will the formula be
cost of revenue from operations =sales return + purchases + wages + opening stock - closing stock ??

Answer 1

Poonam, let's derive the formula.

We know,
$\mathrm{Cost}\mathrm{of}\mathrm{Goods}\mathrm{Sold}=\mathrm{Net}\mathrm{Sales}-\mathrm{Gross}\mathrm{Profit}$

We also know,

$\mathrm{Gross}\mathrm{Profit}=\mathrm{Net}\mathrm{Sales}+\mathrm{Closing}\mathrm{Stock}-\mathrm{Opening}\mathrm{Stock}-\mathrm{Net}\mathrm{Purchases}-\mathrm{Direct}\mathrm{Expenses}$

Now, we can see that Net Sales are getting adjusted, so the formula becomes

Cost of Revenue from Operations = Opening Stock + Net Purchases + Direct Expenses - Closing Stock