What is the Difference Between Gross Profit and Net Profit?


Difference Between Gross Profit and Net Profit

Profit is the friendliest term to the owner(s) of a business, however, during the life-cycle of a business, the term “profit” is divided into different sections in order to find out the exact sources where the benefit is derived from.

Gross Profit

The word Gross means “before any deductions”. This implies that the profit before any deductions is called the Gross profit. It is also called “Sales Profit“.

It is the difference between total revenue earned from selling products/services and the total cost of goods/services sold. (Depending if the company is selling goods or services)

Gross Profit = Net Sales – Cost Of Goods Sold

GP = Net Sales – COGS

Gross Profit can be found on a company’s trading account.

 

Example

Net Sales = 1,50,000

Opening Stock = 10,000, Purchases = 1,00,000, Closing Stock = 20,000

GP = Net Sales – COGS (OS +P – CS)

GP =  1,50,0000 – (10,000 + 1,00,000 – 20,000) = 60,000


Related Topic – Difference Between Net Profit and Operating Profit

Net Profit

The word Net means “after all deductions”. This implies that profit after all deductions is called Net Profit. It is also called “Net Income” & “Net Earnings”. It is the difference between total revenue earned and total cost incurred.

Deductions include adjustments related to the cost of doing business such as taxes, depreciation or other miscellaneous expenses.

Net Profit = Total Revenue – Total Cost

Net Profit = Gross Profit – (Total Expenses for Operations, Interests & Taxes)

Net profit can be found on a company’s income statement.

 

Example

Let’s assume that

Total Operating + Non-Operating Revenues & Gains  = 60,000

Total Operating + Non-Operating Expenses & Losses = 40,000

Net Profit = Total Revenues – Total Costs

NP = 60,000 – 40,000 = 20,000

 



 

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