Ask a Teacher



how to calculate gross profit and loss?

The excess of revenue generated over cost of manufacture or purchase of a product is known as gross profit.

Gross Profit = Net Sales - Cost of goods sold
Net sales = Sales - Sales returns
Cost of goods sold = Opening stock + Net purchases + Direct expenses - Closing Stock

For Example:

From the following information, calculate gross profit.

Sales                                     Rs. 80,000
Sales Return                         Rs. 10,000
Purchases                             Rs. 25,000
Wages                                   Rs. 5,000
Fuel, Power & Electricity     Rs. 3,000
Opening stock                       Rs. 7,000
Closing stock                        Rs. 2,500

Gross Profit = Sales - Cost of goods sold
                   = 70,000 - 37,500 = 32,500


Net Sales               = Sales - Sales return
                               = 80,000 - 10,000 = 70,000
Cost of goods sold = Opening stock + Net purchases + Direct expenses - Closing Stock
                               = 7,000+25,000+(5,000+3,000)-2,500
                               = 37,500


NOTE: If the Cost of goods sold exceeds the Sales, then we call it as Gross Loss


comments powered by Disqus