Accounting By Usman Zuberi

Contribution Margin or CM is used to analyse, how much contribution is earned, when variable costs are deducted from sales revenue of an entity. Contribution margin is used in decision making scenarios. Contribution margin can be calculated per unit or in revenue terms. It is calculated as follows: Per Unit:  CM Per Unit = Sales Price (Per Unit) - Variable Costs (Per Unit) Revenue Terms: CM = Sales - Direct Materials - Direct Labor - Variable Overheads Presentation of Contribution Margin is as follows: Sales                                         xx Less: Variable costs - Direct materials                     (xx) - Direct labor                            (xx) - Variable overheads                 (xx)                                                     - Total variable costs                 (xx)    Contribution margin                  xx CM Ratio: Contribution margin ratio is calculated as follws: CM Ratio(%age)  = CM / Sales * 100 Example 1: Sales P

What Is Trading Account Trading Account is prepared to calculate the Gross Profit of an entity for a particular time period. Time period may be 1 year, 3 months or 1 month. Trading Account shows following items: Sales / Revenues Sales Returns Cost of Sales and  Gross Profit Cost of Sales = Opening Stock (Inventories) + Purchases - Closing Stock (Inventories) Gross Profit = Sales - Cost of Sales Example: ·         ABC Company has following details ·         Inventory at 1 st September, 2017 = $100 ·         Purchases of stock during the year = $300 ·         Inventory at 31 ST August, 2018 = $150 ·         Sales for the year = $400 1)                  Calculate Cost of Sales and Gross Profit? 2)                Prepare Trading Account for the year 2018 Solution: 1)                  Cost of sales = $100 + $300 – $150                         = $250 Gross profit = $400 - $250 = $150 2)                    ABC Company Tradin

Depreciation is the gradual charging to an expense of an asset's cost over its expected useful life.  It is an expense therefore charged in Income Statement of an entity