What is Gross Profit? Gross Profit Formula

What is Gross Profit?

Gross profit can be defined as net sales minus the cost of goods sold. It also means the excess of turnover over the cost of goods sold.

Gross profit is the difference between the selling price of a product and the cost price of that particular product. There are different gross profit formula, depending on the question, but they mean the same thing. It is the total profit before the deduction of expenses incurred by the business. In Accounting, it is calculated through the preparation of trading account.

Gross profit formula is Opening stock plus purchases minus return outwards minus closing stock, the total will be deducted from the sales revenue. 

For instance, a trader in Nigeria bought goods for N2000, he used N100 to transport the goods to his shop then sold it for N4000. From the gross profit formula, the difference between the selling price and the cost price without deducting the expenses incurred (N100) which is (4000-2000=2000) is the gross profit. 

To further illustrate gross profit, let's assume that a manufacturer's net sales (Net sales is calculated as Sales minus return inwards) is $60,000 and his cost of goods sold (Opening stock plus purchases minus closing stock) is $39,000. The gross profit of the manufacturer is $21,000 ($60,000 minus $39,000).

1. The selling price of goods
2. The cost of goods sold by the business.
3. The number of competitors in the same line of business
4. Relationship between demand and supply
5. The seller's knowledge about the market.

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