Definition of Gross Profit: Difference Between Business Income and COGS

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Gross Profit Definition

Definition
Gross Profit is determined by deducting Cost of Goods Sold (COGS) from business income. COGS is a term used to describe expenses directly related to generating or producing the income of a business. Gross Profit does not include normal operating expenses such as insurance or supplies.

Expanded Definition
The balance remaining after deducting Cost of Goods Sold (COGS) from business revenue is called Gross Profit. Cost of Goods Sold is comprised of expenses directly related to the production of income. Normal operating expenses such as the cost of supplies, utility fees or fuel charges are not included in the calculation of Gross Profit. When comparing two businesses within the same industry, Gross Profit can be useful in determining which company is better utilizing resources to produce income. The resulting number is reported on a financial statement called a Profit & Loss report which is also known as an Income Statement.

Related Blog Article:
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Profitability vs. Profit

 

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