Cost of sales
Please could someone help me to understand the calculation for Gross Profit
The query relates to a haulage company. Lets assume turnover is 100K, next we deduct cost of sales. The company has included the fuel costs as direct costs historically. I understand that to arrive at a cost of sales figure we take opening stock (in this case the value of fuel stocks) add purchases made within the year and deduct closing stock. So if the turnover is £100K, and the COS is 50K we end up with a gross profit of 50K. The bit I m struggling with is, if we are including fuel within the trading account then why is it included within the expenses listed in the P & L to arrive at net profit. It is as though we are accounting for the fuel cost twice? This to my mind understates the net profit. Please help... I am probably just being dumb.