Gross profit and net profit

The idea

Gross profit is the sales amount minus the cost of the goods sold; net profit is what remains after also deducting the other expenses incurred.

What did Kishanlal really keep?

Last month Kishanlal sold goods for ₹80,000. Those goods had cost him ₹48,000. He also paid ₹8,000 for transport, an employee's salary and the electricity bill.

How much profit did he really keep from the month?

• ₹32,000
• ₹24,000
• ₹72,000

Build a month of profit

Each column is an amount for one month. The sales minus the cost of the goods sold is the gross profit. Take away the other expenses to get the net profit. Set the cost and the expenses to match the goal. Two shopkeepers are in the tabs.

Gross profit, then net profit

Gross profit is the sales amount minus the cost of the goods sold; net profit is what remains after also deducting the other expenses incurred.

Kishanlal's month: sales ₹80,000, and the goods sold cost ₹48,000. Gross profit: 80,000 − 48,000 = ₹32,000

His other expenses (transport, an employee's salary, the electricity bill) came to ₹8,000. Net profit: 32,000 − 8,000 = ₹24,000 The net profit is never more than the gross profit.

In this chapter, when we just say profit, we mean the gross profit: selling price minus cost price.

Notes

Gross profit is the sales amount minus the cost of the goods sold; net profit is what remains after also deducting the other expenses incurred.

Check yourself

In a month a shop sells goods for ₹90,000. The goods it sold had cost ₹60,000. What is its gross profit (in ₹)?

Answer: 30000

90,000 − 60,000 = ₹30,000, so the gross profit is ₹30,000.

The same shop paid ₹12,000 that month for other expenses such as rent, salaries and electricity. What is its net profit (in ₹)?

Answer: 18000

30,000 − 12,000 = ₹18,000, so the net profit is ₹18,000.

Which of these is an other expense, taken off to get from the gross profit to the net profit?

A stationery shop sells goods for ₹60,000 in a month. The goods cost ₹36,000 and the other expenses are ₹9,000. What is its net profit (in ₹)?

Answer: 15000

Gross profit: 60,000 − 36,000 = ₹24,000 Net profit: 24,000 − 9,000 = ₹15,000

• The electricity bill of the shop — correct. Yes! Transport, salaries and electricity are other expenses. They are deducted after the gross profit.
• The price paid to the wholesaler for the goods that were sold. That is the cost of the goods sold. It is taken off the sales to get the gross profit.
• The money the customers paid. That is the sales amount. It is where the calculation starts.