Gross Profit – Company's turnover minus the cost of sales related to manufacturing and selling the products, not bank, computer, rent or other charges
(Pronounced growss prof-its)
To remember what gross profit means use the following mnemonic:
The grocery shop cost me all my profits, (gross profits) but thankfully I didn't have to go into the bank (bank charges), the computer store (software charges), the housing office (rent) or any other shops (other costs). (It's NOT these costs)
Gross profit shows how much money your business makes after subtracting some costs. Net profit shows how much money you make after subtracting all costs including government taxes.
Gross profit doesn’t include costs such as software, bank charges, head office salaried staff, taxes on profit, other expenses, losses or gains on machines sold (depreciation).
Many discussions occur with accountants about what is a cost of sale or not.
The formula to calculate gross profit:
Gross Profit = Turnover – Cost of goods sold