Gross and Net Profit for Unit 3

Topics: Revenue, Generally Accepted Accounting Principles, Cost of goods sold Pages: 2 (532 words) Published: June 6, 2013
P3 Outline the differences between gross and net profit
If a business wants to succeed they have to make profit. Because if they do not make any sort of profit then their business will not succeed. If Hannah wants to succeed in her business then she must make profit in order to survive in the outside market and if she doesn’t make that much profit then her business is in trouble she can go in debt or even lose his business as it won’t exist anymore. So Hannah needs to know about the two main types of profit which is gross profit and net profit these are very important for Hannah’s business. Profit = Total revenue – (rent + wage + interest)

Gross profit: is the amount of money left over from the revenue when the cost of sales is deducted. Also revenue is the money that comes into the business it is also known as income. Net profit is the amount of money that is left when the operating expenses are deducted from the gross profit. The difference between gross profit and net profit is the difference between the total revenue and the total cost which is called gross profit also gross profit only arises when after deducting all the expenses. For example Mr Brown buys his goods for £10,000 and paid £200 on account and £100 as octroi duty (meaning that a tax has been imposed or billed) So Mr Brown sells his goods for £1, 4000 but now the cost of goods sold will become £10,300 (10,000 +200 + 100 ) so the gross profit is going to be £3,700. Gross profit = total sales – cost of goods

= £14,000 - £10,300
= £3,700
So the difference between the 2 is that gross profit is an excuse of net sales over cost of manufacturing meaning that all the expenses that have been related to purchaser or manufacture of goods. Also it is not the true profit of business and it shows that the progress of the business can be judged by the comparison of gross profit and net sales. The difference between net profit is that it is ascertained be deducting all indirect...
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