Gross Profit

Some have heard of profit, but gross profit? What is it?

Profit is the difference between income and expenses and can be split into Gross Profit and Net Profit.

Gross Profit is the money made after all costs directly attributable to sales have been deducted.

Income – Cost of Goods = Gross Profit

Also referred to as Gross Income or Sales Income

Gross Profit is the sum available to contribute towards business operating expenses.

Net Profit is the money left over after all expenses have been deducted from income.

Net Profit = Gross Profit – Overheads

For a sole-trader, the Net Profit is the sum used to calculate any tax that might be due.

The figures for both gross profit and net profit are detailed within the Statement of Profit or Loss which are drawn up a minimum of once a year.

Ensuring to have an understanding of Gross Profit will help with budgeting for estimated operating expenses and supports the continuation of a business.

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