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By Norma Wahnon

Copyright 2012 Norma Wahnon

Smashwords Edition

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From Form 1040, Schedule C, the gross income for a business is determined by the formula:

Gross Income = Sales – Cost of Goods Sold + Other Incomes

The amount of sales (or income) for a small business can be recorded using either the cash method of accounting or the accrual method of accounting.

Figure 1: Profit or Loss from Business – Form 1040, Schedule C

Regarding the cost of goods sold, Lines 35 through 42 of Form 1040, Schedule C present the formula to determine the cost of goods sold. In a simplified form, the formula for cost of goods sold is:

Cost of Goods Sold = Beginning Inventory + Purchase – Ending Inventory

Figure 2 illustrates the process of calculating the cost of goods sold using lines 35–42 of Form 1040, Schedule C.

Figure 2: Figuring the Cost of Goods Sold, in Form 1040, Schedule C, Line 35 – 42

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