This gives you an in-depth knowledge about the 'Important of Profit'. This includes definitions of the profit, gross profit, revenue and more . It gives a more understanding about a business earning profit by selling its products to a customers at a price which is higher than the total costs of mak...
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Unit 4
TOPIC(S): Income Statements
PAGE(S): 268—293
1.1 The Importance of Profit
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There are three types of profit:
1. gross profit KEY WORDS
2. profit Gross profit: the difference
between revenue and cost
3. retained profit - the owners of a profitable
of sales.
business may decide to reinvest some of the
profits in the business. Profit: the difference
between revenue and total
costs.
A business earns a profit by selling its products to a
Total Cost: cost of sales
customers at a price which is higher than the total
plus expenses.
costs of making and supplying those products.
Revenue: the amount
The profit formula is: profit = revenue — total
earned from the sale of
costs
products.
another formula for calculating profit is: profit
Cost of sales: the cost of
= gross profit — expenses
purchasing the goods used
The revenue formula is: revenue = selling price x to make the products sold.
quantity sold
Expenses: day-to-day
The gross profit formula is: gross profit = operating expenses of a
revenue — cost of sales business.
The importance of profit to a private sector business
Profit is a reward to business owners for the risk they take in investing their capital into the
business. Profit is also used to:
measure the success of a business.
measure the performance of managers, decide whether or not to continue making or selling a
product.
finance the purchase of non-current assets, expanded the business, and so on.
attract investors who will provide the additional funds needed to finance business expansion.
Unit 4 1
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