A trading business buys stock and then resells them to the customer.
So this means the sales budget and purchases budget are crucial for managers to know how much stock to purchase.
The Income Statement shows revenues, the costs of buying product (costs of sales- Cost of Goods Sold) and the general operating costs.
Cost of Goods Sold will show how much profit is made before any general operating expenses are included. This is useful and it should be equivalent to the markup on the cost price of the stock.
Gross Profit shows if the markup is sufficient to cover the operating expenses and to make an adequate profit for the business owner.
