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what is the diffrence between gross profit& net proffit?
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Answer Posted / sanjeeb kumar panda
Gross Profit or Loss:
Gross profit is ascertained by deducting cost of goods sold (all direct expenses like purchases, carriage, custom duty, sock charges, octroi duty etc.) from sales.
Gross profit = Total sales - All direct expenses or cost of goods sold
For example, suppose Mr. X purchased some goods for $10,000 and paid $200 on account of carriage and $100 as octroi duty. He sold the goods for $1,4000. Now, the cost of goods sold will be $10,300 (10,000 + 200 + 100) and gross profit will be $3,700.
Gross profit = Total sales - Cost of goods sold
= 14000 - 10300
=3,700
Thus the account which is prepared to determine the gross profit or gross loss of a business concern is called trading account.
Net Profit or Loss:
It is ascertained by deducting all indirect expenses (the expenses incurred for running the business and selling the goods) from the gross profit.
Net profit = Gross profit - All indirect expenses
Suppose in the above example, Mr. X paid $1,000 as salaries and $500 as rent. His net profit will be $2,200.
Net profit = Gross profit - All indirect expenses
= 3,700 - 1,500
= 2,200
Thus the account which is prepared to determine the net profit or net loss of a business concern is called profit and loss account
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