How to work out gross profit and net profit
Cost of sales gives gross profit. Take off the other expenses and you have net profit, the profit for the year.
In this room: 3 tasks, 10 questions
- Cost of sales and gross profit4 questions
- Carriage inwards and carriage outwards2 questions
- From gross profit to net profit4 questions
Gross profit is revenue less cost of sales. Cost of sales is what the goods sold in the year cost the business.
- Start with opening inventory
- Add purchases, less purchases returns
- Add carriage inwards, the cost of getting the goods in
- Take away closing inventory, the goods still unsold at the year end
| Item | £ |
|---|---|
| Revenue (sales less sales returns) | 95,000.00 |
| Opening inventory | 8,000.00 |
| Purchases | 54,000.00 |
| Purchases returns | 1,500.00 |
| Carriage inwards | 500.00 |
| Closing inventory | 9,000.00 |
Answer the questions below
3 more questions follow in this task.
Carriage is the cost of delivery. Which way the goods travel decides where it goes.
- Carriage inwards
- delivery of goods the business buys. It is part of cost of sales
- Carriage outwards
- delivery of goods to customers. It is an expense, below gross profit
Answer the questions below
1 more question follows in this task.
Net profit is the profit for the year: gross profit less all the other expenses. Gross profit for Marlow Cycles is £43,000.
| Expense | £ |
|---|---|
| Wages | 18,000.00 |
| Rent | 6,000.00 |
| Electricity | 2,400.00 |
| Carriage outwards | 600.00 |
| Depreciation of shop fittings | 2,000.00 |
Any change in cost of sales changes gross profit and net profit by the same amount.
Answer the questions below
3 more questions follow in this task.