Finding Value of Closing Stock from Sales

We may be able to ascertain what is left out if we know what has been sold. This logic may be applied in finding the value of closing stock. However, to know this, we need to ascertain the value of cost of goods sold.

1.Gross Profit = Sales − Cost of Goods Sold

2.Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses − Closing Stock

3.Gross Profit = Sales − (Opening Stock + Purchases + Direct Expenses − Closing Stock) [From (i) and (ii)] 
= Sales − Opening Stock − Purchases − Direct Expenses + Closing Stock

4.Closing Stock = Opening Stock + Purchases + Direct Expenses + Gross Profit − Sales [From (iii)]

To use this relation to obtain the value of closing stock, we need the information relating to Gross Profit. All other information in this relation is readily available from the accounting records.

Gross Profit Ratio

Gross Profit Ratio is the ratio of Gross Profit to Net Sales Value or Cost of Goods Sold.

» To Sales

Gross Profit Ratio = Gross Profit /Net Sales


Gross Profit as a % of Sales = Gross Profit/Net Sales× 100

(Or) = Gross Profit Ratio (to Sales) × 100

» To Cost of Goods Sold

Gross Profit Ratio = Gross Profit/Cost of Goods Sold


Gross Profit as a % of Cost of Goods Sold = Gross Profit/Cost of Goods Sold× 100

(Or) = Gross Profit Ratio (to Cost) × 100