What is a markup analysis?

Answer

With the markup, an auditor would establish what your purchases are. The first thing they would look at is actually your reported markup off your federal income tax returns and see what that reflects. Then they would analyze that, usually with what’s known as a shelf test. They would look at a number of items, highball your items that you sell and calculate what your markup is off of those items. That would help them determine what the expected markup would be. Then they could analyze your cost of goods sold out of your general ledger and compare that to your recorded sales to see what your recorded markup is. And evaluate all these in relationship to the gross receipts that you reported on your sales and use tax returns.

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