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What does the cost of goods sold and gross profit mean

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Word has gotten around that you know accounting and can explain it well. Jim, another of your friends has a unique business. During the summer he buys hats that cost $5.00 each and sells them at the beach for $12.00 each. Other than the cost of the hat, his only other expense last summer was $120 for parking. He sold 78 hats last summer. His accountant prepared a financial statement for him and he has several questions about the income statement. He asks:

Question 1: What does the cost of goods sold and gross profit mean?

Question 2: How much gross profit do make on each hat?

Question 3: Why show both gross profit and net income?

Question 4: If have hats returned or a give a discount, how will that be shown on the income statement?

Reference no: EM132595142

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