Profit – meaning, types and structure

Back to: COMMERCE SS2

 

Welcome to Class !!

We are eager to have you join us !!

In today’s Commerce class, We will be learning about Profit. We hope you enjoy the class!

 

 

CONTENT

1. Types of profit
2. Items in the Trading, Profit and Loss Account.
3. Factors Affecting Profit.
4. Turnover/Rate of Turnover.

 

 

PROFIT

The profit of a business firm could be either Gross Profit or Net Profit.

 

GROSS PROFIT: This is the total sales less Cross Price. It is the amount a seller adds to his cost or buying price to determine his selling price.

i.e. Gross Profit   =  Selling Price  –  Cost Price

It should be noted that the gross profit of a firm is not its true profit since other expenses are incurred in running the business.  The gross profit, by itself, cannot, therefore, tell whether or not a business firm is making headway.  The most important thing to look at is the NET PROFIT.

 

NET PROFIT: This refers to the gross profit less the expenses of running the business.  This is the amount left for the owner or owners of the business as a reward for the risk taken.  The success of the business is measured in terms of the Net Profit.

Expenses incurred in running a business include rent, rates, advertising depreciation, bad debts electricity bills wages and salaries transportation, carriage outwards, insurance etc.

 

ITEMS IN THE TRADING PROFIT AND LOSS ACCOUNT

• Purchases
• Sales
• Returns inwards
• Returns outwards
• Carriage inwards
• Gross Profit or Gross Loss
• Expenses e.g. rent, wages, insurance etc
• Other operating incomes e.g. discount received commission received, bad debts recovered etc.
• Net Profit or Net Loss.

 

REVIEW QUESTIONS

1. Give a short description of the information which should be found in:

(a)      a trading account

(b)      a profit and loss account

2. Explain what is meant by each of the following:

(a) gross profit         (b) net profit                        (c) net sales

 

 

 

We have come to the end of this class. We do hope you enjoyed the class?

Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.

In our next class, we will continue learning about Profit. We are very much eager to meet you there.

 

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