Does a Gross Profit Include Expenses?
Gross profit is expressed on a company's income statement. Some expenses are deducted to arrive at a company's gross profit, but not all of them. All other company expenses, including items such as overhead, depreciation on company assets and other expenses, are subtracted from gross profit to arrive at net profit. Net profit tells you what the company really earned after all expenses are deducted.
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Gross Profit Definition
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Gross profit, expressed on a company's income statement, is defined as revenue, or sales, less cost of goods sold. In other words, gross profit is the amount of money a company makes from selling products and services before other expenses, such as employee salaries, office overhead and other similar expenses, are subtracted.
Cost of Goods Sold
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Cost of goods sold represents all the costs involved in buying or producing a product or service. This includes the price the company paid for the product as well as any transportation costs involved in getting the product to the company's store. Gross profit is sometimes referred to as markup. For example, if a company has a 100 percent markup, it means the revenue it earned is 100 percent more than the price it paid for the goods it sold.
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Income Statement
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An income statement is one of the basic financial statements publicly traded companies are required to periodically make available for investors. An income statement tells investors how much revenue or profit the company made over the period of time represented by the statement. In the top section of the statement, gross sales are subtracted from cost of goods sold, giving you the company's gross profit.
Net Income
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Below the gross profit section of the income statement, other expenses are deducted. The second section of the statement provides operating expenses, including advertising costs, depreciation, sales commissions and administrative overhead. Total operating expenses are then deducted from gross profit, giving you the company's operating income. From operating income, non-operating and other expenses and income are subtracted or added, including interest earned on investments, interest expenses and investment losses. This number is either added or subtracted -- depending on whether it is a negative or positive number -- from operating income to give you the company's net income.
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References
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