Gross Profit Vs 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.
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 on 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.
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
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.
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
Short Quiz for Self-Evaluation
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