Defined |
Net profit is gross profit minus other, overhead costs.
These costs are indirect costs of production such as bills,
transportation, wages, interest payments etc.
Net profit = gross profit - overheads
|
Example |
As you can see, we are looking at the continuation of the trading
account from the page on gross profit.
When we take overheads into account, we can see that what was a
gross profit of £13,150 is now a net loss of £1,650.
Trading
and Profit & Loss Account for Filling Snacks for year
ended 31 December, 2000
|
| |
|
|
£ |
|
£ |
| Sales |
|
|
|
|
18,000 |
| |
| less Cost of Sales |
|
|
|
|
|
| |
Opening Stock |
|
750 |
|
|
| |
Purchases |
|
5,000 |
|
|
| |
Closing Stock |
|
(900) |
|
|
| |
|
|
|
|
(4,850) |
| |
| Gross
Profit |
|
|
|
|
13,150 |
| |
| less Expenses |
|
|
|
|
|
| |
Rent |
|
10,000 |
|
|
| |
Interest Payments |
|
1,800 |
|
|
| |
Light & Heat |
|
1,500 |
|
|
| |
Advertising |
|
500 |
|
|
| |
Other |
|
1,000 |
|
|
| |
|
|
|
|
(14,800) |
| |
|
|
|
|
|
| Net
Profit |
|
|
|
|
(1,650) |
|
This account will allow the manager to develop a strategy to avoid
a loss in the future. This might involve boosting sales or cutting
costs. The rent bill, for example, is the largest of the costs faced
and the manager might find that alternative premises will improve
the situation.
|
