ITPEC IP October 2023 Question 72

Gross profit equals sales minus cost of sales. Sales is the revenue earned from goods or services, and cost of sales is the direct cost associated with the items sold. The difference shows profit before selling, general, administrative, non-operating, extraordinary, and tax items.

Answer (a)

Why not others:
- (b) calculates ordinary profit from operating profit after non-operating income and expenses
- (c) moves from ordinary profit toward profit before tax by including extraordinary gains and losses
- (d) calculates profit after taxes from profit before tax

Key rule: Income statement flow begins sales − cost of sales = gross profit; later expenses and gains produce operating, ordinary, pre-tax, and net profit.

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