CPA Accountant Review Questions

Answer - A - Cost of goods sold is subtracted from net sales to determine gross profit.

Key Takeaway: Gross Profit = Net Sales − COGS. Operating Income is determined by taking the Gross Profit and subtracting Operating Expenses. The net amount of non-operating revenues, gains, non-operating expenses, and losses is combined with Operating Income to arrive at the Net Income (or the Net Loss).

Some common formulas:

− Net Sales − COGS = Gross Profit
− Gross Profit − Operating Expenses = Operating Income
− Operating Income + (Non-operating Income + Revenue + Gains) − (Non-operating Expenses + Non-operating Losses) = Net Income or Net Loss