Question

Gap Inc.'s Sales, Cost of Goods Sold, and Gross Profit

The consolidated balance sheets of Gap Inc. included merchandise inventory in the amount of $1,619 as of January 30, 2016 (the end of fiscal year 2015) and $1,637 as of January 31, 2015 (the end of fiscal year 2014). Net sales were $14,531 and $14,658 at the end of fiscal years 2015 and 2014, respectively. Cost of goods sold and occupancy expenses were $9,271 and $8,799 at the end of fiscal years 2015 and 2014, respectively. All amounts are from Gap Inc.’s 2015 Form 10-K.

Required:

1. Gap Inc. does not include accounts receivable on its balance sheet, most likely due to

      

2. Identify and analyze the transaction to record sales during the year ended January 30, 2016.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank or enter "0". If the effect is negative, use the minus sign.
Enter amounts in millions of dollars. For example, 12,400,000,000 would be entered as 12,400.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

–

Expenses

=

Income

3. Gap Inc. sets forth net sales but not gross sales on its income statement. What type(s) of deduction(s) would be made from gross sales to arrive at the amount of net sales reported?

4. Reconstruct the Cost of Goods Sold section of Gap Inc.'s 2015 income statement. Enter amounts in millions of dollars. For example, 12,400,000,000 would be entered as 12,400.

Gap Inc.
Cost of Goods Sold
For the Year 2015
	$
	$
	$

5. Calculate the gross profit ratios for Gap Inc. for 2015 and 2014. If required, round the percentage to one decimal place.

Gap's 2015 gross profit ratio:	%
Gap's 2014 gross profit ratio:	%

Is the company's performance improving?

Answer 1

1) Gap Inc. does not include accounts receivable on its balance sheet, most likely due to CASH SALES, in cash sales, account receivalbe are not included in balance sheet.

2) Entry for sales

let sales during year ended January 30, 2016. as 14531

particulars	denit	credit
cash A/C --------Dr	14531
To sales		14531
( being sales recorded)

analysis of  the transaction to record sales

Activity	In trading account sales activity is recorded on credit side and In balance sheet this activity recorded in cash column
Accounts	In trading account the sales will increase gross profit by 14531
statements	income statement- revenue income will be increased by 14531
	cash flow statement- this item will be recorded as cash inflow under operating activity 14531
balance sheet- cash will be increased by 14531 - closing stock will be reduced with cost of sales

entry affect the accounting equation

Assets =	liability + Equity	revenue	- expense=	income
14531	0+ 14531	14531	0	14531

3)

Return inwards or sales returns type(s) of deduction(s) would be made from gross sales to arrive at the amount of net sales reported.

4)

Reconstruction of the Cost of Goods Sold section of Gap Inc.'s 2015 income statement.

inventory at beginning	1,637
purchases ( balance )	9253
inventory at ending	1,619
cost of goods sold	9,271

5)

calculation gross profit ratio:

particulars	2014	2015
sales	14,658	14,531
cost of goods sold	8,799	9,271
gross profit	5859	5260

Gross profit ratio = (gross profit / sales )*100

Gap's 2015 gross profit ratio : (5859/14658)*100 = 40%

Gap's 2014 gross profit ratio : ( 5260/14531)*100 = 36.2%

Now we can conclude that based on gross profit ratio that the company's performance is improving.