Items To Check

Consider the following items before figuring your gross profit.

Gross receipts. At the end of each business day, make sure your records balance with your actual cash and credit receipts for the day. You may find it helpful to use cash registers to keep track of receipts. You should also use a proper invoicing system and keep a separate bank account for your business.

Sales tax collected. Check to make sure your records show the correct sales tax collected.

Inventory at beginning of year. Compare this figure with last year's ending inventory. The two amounts should usually be the same.

Purchases. If you take any inventory items for your personal use -- use them yourself, provide them to your family, or give them as personal gifts, etc. -- be sure to remove them from the cost of goods sold. For details on how to adjust cost of goods sold, see Merchandise withdrawn from sale in chapter 6.

Inventory at end of year. Check to make sure your procedures for taking inventory are adequate. These procedures should provide a way of making sure all items have been included in the inventory and proper pricing techniques have been used.

Avoid using adding machine tapes as the only evidence for your inventory. Inventory forms are available at office supply stores. These forms have columns for recording the description, quantity, unit price, and value of each inventory item. Each page has space to record who made the physical count, who priced the items, who made the extensions, and who proofread the calculations. These forms will help satisfy you that the total inventory is accurate. They will also provide you with a permanent record to support its validity.

Inventories are discussed in chapter 6.

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