Cost of Sales Formula Application

Steps:

• Calculate net purchases: $75,000 purchases minus$5,000 returns = $70,000.
• Add opening inventory: $70,000 +$10,000 = $80,000.
• Subtract closing inventory: $80,000 -$12,000 = $68,000.
• Exclude goods taken by owner ($1,000) and debit balance ($4,000) as they are drawings and irrelevant to cost of sales.

Why A is correct:

• Aligns with the accounting formula for cost of sales: opening inventory + net purchases (purchases minus returns) - closing inventory.

Why the others are wrong:

• B: Includes $1,000 goods taken erroneously as part of cost of sales.
• C: Represents only net purchases, omitting inventory adjustments.
• D: Adds $1,000 goods taken to net purchases without inventory changes.

Final answer: A