[Claudia408]

How does this proposed journal entry affect the Gross Profit Ratio? Don’t really get the explanation, can someone explain in a different way?

Sales reported after year end that should have been reported before year end:

Dr. Cost of Sales – 90

Cr. Inventory – 90

Dr. AR – 100

Cr. Sales – 100

Answer: Decrease

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[okcpa2015]

Gross profit is Sales less COGS. The gross profit ratio is simply Gross Profit divided by sales.

If this was the only journal entry for the year then you would have 10% gross profit margin.

Gross profit margin would decrease with an decrease in sales value or on increase in cost of sales. Was that the entire question you posted?

FAR - 91
REG - 88
AUD - 98
BEC - 88

[Claudia408]

Yes it's actually a sim

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Meeekks]

Gross Profit would actually only decrease if the Gross Profit ratio was originally over 10%. Then this adjusting entry would drag it down towards 10%.

If the Gross Profit ratio was originally less than 10%, it would actually drag it upwards towards 10%.

So the answer's not completely correct in my opinion.

[Author]

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