Definition

Gross profit

Gross profit refers to the excess of net sales over the cost of goods sold.

Companies deduct from sales revenue the cost of goods sold in order to determine gross profit. For this computation, companies use net sales as the amount of sales revenue. On the basis of the sales data in Illustration as mention below (net sales of $460,000) and cost of goods sold under the perpetual inventory system (assume $316,000), PW Audio’s gross profit is $144,000 computed as follows.

                  Net sales                                                         $460,000

                  Cost of goods sold                                           316,000

                  Gross profit                                                    $144,000

Share it:  Cite

More from this Section

  • Cost & Cost principle
    Cost consists of all expenditures necessary to acquire the asset and make it ready for ...
  • Partnership
    Partnership is an association of two or more persons to carry on as co-owners of a business ...
  • Stock investments
    Stock investments are investments in the capital stock of other corporations. When a company ...
  • Classification of cash flows
    The statement of cash flows classifies cash receipts and cash payments as operating, investing, ...
  • Carrying (or book) value method
    Carrying or book value method is the method of recording the bond conversion that the ...