Free cinematic Hindi–English accounting lesson | Rangunwala’s Academy
Sales ≠ Profit: A Shopkeeper’s Mystery
दुकान में खूब बिक्री हुई—क्या उतना ही profit भी हुआ? No. Sales (revenue) is the value of goods sold, while profit depends on the cost of those goods and other relevant expenses. Watch our original shopkeeper story first.
Why Sales and Profit Are Different
Suppose a stationery shop sells goods for ₹10,000. If the cost of goods sold is ₹6,500, the gross profit is ₹3,500. If the shop also incurs ₹1,000 of relevant operating expenses, the simplified operating profit is ₹2,500 (assuming no other income or expenses). Sales ₹10,000 does not mean profit ₹10,000. These amounts are illustrative practice figures, not amounts claimed in the video.
Journal Entries: A Checked Example
Assume a cash sale of ₹10,000, no tax, and a perpetual inventory system. At the sale: Cash A/c Dr ₹10,000; To Sales A/c ₹10,000. For the cost of inventory sold: Cost of Goods Sold A/c Dr ₹6,500; To Inventory A/c ₹6,500. If ₹1,000 shop rent is paid in cash for the current period and not recorded earlier: Rent Expense A/c Dr ₹1,000; To Cash A/c ₹1,000. Under a periodic inventory system, cost of goods sold is normally determined through the period-end trading calculation rather than this same sale-time inventory entry.
Practice — Answer Before Opening
Q1. Cash sales ₹8,000; cost of goods sold ₹5,000. Gross profit? Answer: ₹3,000.
Q2. Add ₹1,200 shop electricity expense for the same period. Simplified profit before other items? Answer: ₹1,800.
Q3. A shop receives ₹4,000 from a customer against a previously recorded credit sale. Is it a new sale? Answer: No. Cash A/c Dr ₹4,000; To Customer A/c ₹4,000. The old receivable is collected, not a second sale.
Continue Learning
Start with Why Businesses Need Accounting, then read Accounting Logic System™, Journal Entries Step by Step, and Customer Payment versus New Sales. Explore Premium Practice Resources for further learning information; no purchase availability is implied.
Educational content by Ejaj Abubakar Rangunwala — Rangunwala’s Academy.