Net profit
Also called: Profit for the year
What is net profit?
Net profit is the profit for the year.
It is gross profit less all the other expenses of running the business.
If the expenses come to more than the gross profit, the result is a loss for the year.
Example
Gross profit is £10,000.00 and the other expenses come to £6,500.00. Net profit is £3,500.00.
Why it matters
The profit for the year belongs to the owner, so it adds to capital. Drawings are not an expense and do not reduce it.
Practise it
Practise it nowHow to work out gross profit and net profit
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].