REVENUE

Revenue is a result when sales exceed the cost to produce goods or render
the services.

Revenue is recognized when earned, whether paid in cash or charged to the

account of the customer. Other terms related to revenue include

Sales and Service Income.

Sales is used especially when the nature of business is merchandising
or retailing, while Service Income is used to record revenues earned by
rendering services.
Mark up refers to the amount added to the cost to come up with the selling
price.
The formula for getting the mark up price is as follows:
Mark Up Price = ( Cost x Desired Mark Up Percentage)
Mark Up for T-shirt = ( 90.00 x .50)
Mark Up for T-shirt = 45.00

In calculating for the selling price, the formula is as follows:

Selling Price = Cost + Mark Up
Selling Price = 90.00 + 45.00
Selling Price for T-shirt = 135.00
 GROSS PROFIT
As we all know, profit is a financial gain from a transaction or from a period of
investment or business activity, usually calculated as income in excess of costs or as the final
value of an asset in excess of its initial value.

It is the total revenue minus total expenses, profit is the amount of money a
business "makes" during a given accounting period. The more profit you make, the better, as
profit can be re-invested into the business or retained by the business owners. Being able to
accurately determine your business's profit is an essential part of being able to judge its
financial health. It can also help you decide how to price your goods and services, how to pay
your employees, and more.

To make your business gain more profit, begin by adding up all of the money your
business has made in a set period of time, (either, quarterly, yearly, monthly, etc.) other
sources, like products sold, services rendered, membership payments, or, in the case of
government agencies, taxes, fees, the sales of resource rights, and so on.
 Cost of Goods Sold / Cost of Sales refer to the amount of merchandise or goods sold
by the business for a given period of time. This is computed by adding the beginning inventory to
the Net Amount of Purchases to arrive with Cost of Goods available for sale from which the
Merchandise Inventory, end is subtracted.

Merchandise Inventory, beginning refers to goods and merchandise at the beginning

of operation of business or accounting period

Purchases refer to the merchandise or goods purchased. Example: Cost to buy each pair
of Jeans or t-shirt from a supplier.

Merchandise Inventory, end refers to goods and merchandise left at the end of
operation or accounting period.

Freight-in refers to amount paid to transport goods or merchandise purchased from the
supplier to the buyer. In this case, it is the buyer who shoulders these cost.
In a merchandising business such as Fit Mo’to Ready to Wear Online Selling Business, the
formula to compute for costs of goods sold is as follows:

Merchandise Inventory, beginning P XX.XX

Add: Net Cost of Purchases XX.XX
Freight-in XX.XX XX.XX
Cost of Goods Available for Sale P XX.XX
Less: Merchandise Inventory, end XX.XX
Cost of Goods Sold P XX.XX
=====

Sample Computation:
Merchandise Inventory, beginning P 00.00
Add: Net Cost of Purchases 68,400.00
Freight-in 10,000.00
Cost of Goods Available for Sale P 78,400.00
Less: Merchandise Inventory, end 00.00
Cost of Goods Sold P 78,400.00
 Operating expenses such as Internet connection, and Utilities like electricity and
miscellaneous expense are important to keep the business running. These expenses are part
of the total costs incurred by the business in its day-to-day operation and are paid every end
of the month. The operating expenses and assumed amounts are presented below:
Operating Expenses
Add: Internet Connection P 1,299.00
Utilities (Electricity) 800.00
Miscellaneous expense 300.00
Total Operating Expense P 2,399.00
=======

To calculate the total costs incurred by the business, cost of goods sold and total operating
expenses are then added. The calculation for the costs incurred for the month of January is
presented below:
Cost of Goods Sold P 78,400.00
Total Operating Expense 2,399.00
Cost P 80,799.00
========
 GROSS PROFIT
Note that you will need to subtract any amount of cash refunded to customers for
returns or disputes in order to find an accurate figure for your total income.

It's easier to understand the process of calculating a business's profit by following

along with an example.

Let's say that we own a small publishing business. In the last month, we sold
P20,000 worth of books to retailers in the area. However, we also sold the rights to one of
our intellectual properties for P7,000 and received P3,000 from book retailers for official
promotional materials.
If these represent all of our revenue sources, we can say that our total income is

P20,000 + P7,000 + P3,000 = P30,000.

 Computing the Gross Profit
The profitability ratios are a group of financial statements that primarily
determine the profitability of the business operation.

The gross profit rate on a product is computed as:

Net Sales xxxxxxx
Less: Cost of Sales xxxxxxx
Gross Profit xxxxxxx

By using the formula, the gross of XYZ Trading in the year 2017 is as follows:
Net Sales P 734, 000.00
Less: Cost of Sales 577, 000.00
Gross Profit P 157,000.00
========
Profit is the gross income. The amount of gross profit provides information to the entrepreneur about
revenue earned from sales.

The term cost refers to the purchase price of the product including the total outlay required in producing it.

The gross profit margin is computed as follows:

Gross Profit Rate = Gross Profit / Net Sales

The gross profit rate measures the percentage of gross profit to sales, indicating the profit
that the business realizes from the sale of the product.

The gross profit rate of XYZ Trading for the year 2017 is computed as follows:

Gross Profit Rate = 157,000 / 734,000

= 21.39 %
 Operating Profit Margin Rate
The operating profit margin is the excess of gross profit from operating expenses.
Gross Profit xxxxx
Less: Operating Expenses xxxxx
Operating Profit Margin xxxxx

The operating profit margin is the second level of revenue in the income statement. At this stage,
not only is the cost of buying or making the product that has been deducted is included but also the operating
expenses. These are expenses incurred during a particular period only, and are not expected to provide
benefits to any future period. The operating expenses are also period costs.
In case there are no financing charges like interest, expenses, and income tax, the amount of the
operating profit margin is equal to the net income.

Gross Profit P 157,000.00

Less: Operating Expenses 90,000.00
Operating Profit Margin P 67,000.00
========
This information states that the business realized an income of P 67,000.00 during the year
after deducting the cost and operating expenses from the sales made.

Operating Profit Margin Rate = Operating Profit Margin / Net Sales

By applying
Operating Profit Margin Rate = 67,000.00 / 734,000.00
= 9.13%

The operating profit margin of the business measures the percentage of profit available after
deducting the cost of sales and operating expenses of the business. A higher operating profit margin is
favorable to the business.
Net Profit Margin Rate
Operating Profit Margin xxxxxxx
Add: Interest Income xxxxxxx
Total xxxxxxx
Less: Interest Expense xxxxxx
Income Tax xxxxxx xxxxxx
Net Profit margin xxxxxx

The income statement is the net profit margin and the third level in the revenue.
The business is only given consideration like interest expense and income tax.

Operating Profit Margin P 67,000.00

Less: Income tax 20,000.00
Net Profit Margin P 46,900.00
========
The income statement of XYZ Trading does not reflect any data on interest expense.
Only income tax has been deducted from the operating profit
margin.
Net profit margin rate = Net Profit / Net Sales

By applying the formula, the profit margin of XYZ

Net profit margin rate = 46,900.00 / 734,000.00
6.39%

XYZ Trading appears to have earned 6.39% of its total sales of P734,000 during the year.
This profits rate must be compared with those of other similar businesses within the
industry.
 ASSESSMENT
Instruction: Copy and answer in whole sheets of yellow pad/s.

Test 1:
The entrepreneur should always present the assumptions to consider in projecting costs,
may it be cost of goods sold or operating expenses. This will help achieve the best
educated estimates of your costs. The entreprenuer must clearly identify costs incurred
in the business operation. ________________ is the amount of goods or merchandise
sold during a period of time which incurs a large portion of the total cost of a
_________________ business. The cost of goods sold can be calculated by simply
multiplying _____________________ to its corresponding ________________. A cost in
transporting the goods from the supplier to the seller or __________________ is then
added to Net Cost of Purchases.
 ASSESSMENT
Test 2:
Answer the given problem.
1. Annie bought one dozen smartphones for P200,000.00 with a discount of 5%. She
sold half a dozen at a price of P18,000.00 per unit. However, a new model of
smartphones became available in the market, so she sold the remaining half dozen @
P12,000.00 each unit. What was her profit or loss?

Compute the following requirements:

a. Gross profit rate
b. Operating profit margin rate
c. Net profit margin rate
 ASSESSMENT
Test 3:
After learning how to compute the gross profit, try solving the given problems below:
1. A watch store owner decided to offer 20% discount for a particular brand of watch
that sells at P35,000.00. By doing so, his average sales increased from 5 watches to 12
watches a day. If he bought one watch at a price of P22,000.00 from the supplier, by
how much was his daily profit increased or decreased by offering such discount on the
watch?

2. Michelle went to Baguio and bought 20 jars of strawberry jam for P3,500.00 with
15% discount. When she got back to Manila, she sold 10 of the jars for a total of
P1,800.00 and the rest as P185.00 each. How much profit did Michelle gain?