Sales ₦27,000, cost of goods sold ₦19,200, expenses and a ₦500 reduction in doubtful debts: what is the net profit?

First find the gross profit. Cost of goods sold = opening stock + purchases − closing stock = ₦2,200 + ₦18,000 − ₦1,000 = ₦19,200. Gross profit = sales − cost of goods sold = ₦27,000 − ₦19,200 = ₦7,800.

The expenses are salaries ₦1,500, office expenses ₦1,100 and other expenses ₦1,300, a total of ₦3,900.

A reduction in the provision for doubtful debts is a gain, not an expense. The business set aside too much last year, so the ₦500 is added back to profit.

Net profit = ₦7,800 − ₦3,900 + ₦500 = ₦4,400. The tempting ₦3,400 comes from wrongly treating the ₦500 as an expense.