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Gross profit

Gross profit is the amount of money a business makes after deducting the costs of producing and selling its goods or the costs of offering its services.

A company's income statement will show gross profit, which is derived by deducting the cost of goods sold (COGS) from revenue (sales). The income statement of a business will contain these numbers. Sales profit or gross income are other names for gross profit.

As a general rule, fixed expenses are excluded from gross profit (that is, costs that must be paid regardless of the level of output). Rent, advertising, insurance, salary for those not directly involved in the production, and office supplies are some examples of fixed costs.

However, it should be emphasized that under absorption costing, which is necessary for external reporting in accordance with Generally Accepted Accounting Principles (GAAP), a portion of the fixed cost is assigned to each unit of production.

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