Testing Gross Profit Accuracy Halmstad accommodationIf you are in a retail or wholesale business, you can check theaccuracy of your gross profit figure. First, divide gross profit bynet receipts. The resulting percentage measures the average spreadbetween the merchandise cost of goods sold and the selling price. Next, compare this percentage to your markup policy. Little or nodifference between these two percentages shows that your gross profitfigure is accurate. A large difference between these percentages mayshow that you did not accurately figure sales, purchases, inventory,or other items of cost. You should determine the reason for thedifference. Example.Joe Able operates a retail business. On the average, he marks uphis merchandise so that he will realize a gross profit of 33 1/3% on its sales. The net receipts (gross receipts minus returnsand allowances) shown on his income statement for 1999 is $300,000.His cost of goods sold is $200,000. This results in a gross profit of$100,000 ($300,000 - $200,000). To test the accuracy of thisyear's results, Joe divides gross profit ($100,000) by net receipts($300,000). The resulting 33 1/3% confirms his markuppolicy of 33 1/3%.