Gross Profit Definition
Gross profit is determined by deducting the cost of goods sold (COGS) from business income. Gross profit does not include normal operating expenses such as insurance or supplies.
Gross Profit Expanded Definition
The balance remaining after deducting 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.
The gross profit formula is:
Gross Profit = Revenue – COGS
When comparing two businesses within the same industry, gross profit can be useful in determining which company better utilizes 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.
Last Updated By
Rachel Blakely-Gray | Apr 12, 2023