Definition of Gross Net Profit
"Gross profit" and "net profit" are two distinct terms widely used in business by managers as well as accounting and finance professionals. Put simply, gross profit represents a "whole," and net profit represents a "portion."
Other People Are Reading
-
Gross Profit
-
Gross profit is calculated by deducting the cost of a product (or service) from its selling price. If you bought a used car for $500 and sold it for $750, then your gross profit would be $250 (750 minus 500).
Net Profit
-
Net profit is calculated by deducting all associated costs from a product's selling price. If you had to pay $20 for a train ticket to obtain the used car in the example above, your net profit will be "selling price, minus the cost of car, minus the cost of train ticket." In this example, the net profit is $230.
-
Factory Overhead
-
Factories and manufacturing facilities incur costs for utilities such as electricity, gas and water. Costs are associated with producing the factory's product, so they should be considered when computing net profit.
Allocated Costs
-
Associated costs are allocated to each unit of a factory's produced item. If a factory produced 500 toys and paid $1,000 for electricity, gas and water charges, then $2 ($1,000 divided by 500) would be added to the cost of each toy.
Tax Effects
-
Salaried people pay income taxes on their gross profit (gross income), whereas businesses and self-employed individuals pay income taxes on net profit (net income).
-
