Gross profit method definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Gross profit method can be defined as: Procedure to estimate inventory by using the past gross profit rate to estimate cost of goods sold, which is then subtracted from the cost of goods available for sale. Gross profit method can be a useful calculation to double check the ending inventory number, gross profit method used to see if there was any shrinkage or theft. A gross profit method can be useful when using a periodic inventory system because this system records cost of goods sold at the end of a time period after a physical count but does not take into account shrinkage or theft. A gross profit method can provide some idea of what the ending inventory should be.
