Gross profit

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In accounting, gross profit, sales profit, or credit sales is the difference between revenue and the cost of making a product or providing a service, before deducting overheads, payroll, taxation, and interest payments. This is different from operating profit (earnings before interest and taxes). Gross margin is the term normally used in the U.S.,[1] while gross profit is the more common usage in the UK and Australia.

The various deductions (and their corresponding metrics) leading from net sales to net income are as follows:

Net sales = gross sales – (customer discounts + returns + allowances)
Gross profit = net salescost of goods sold
Gross profit percentage = [(net salescost of goods sold)/net sales] × 100%.
Operating profit = gross profit – total operating expenses
Net income (or net profit) = operating profit – taxes – interest

(Note: cost of goods sold is calculated differently for a merchandising business than for a manufacturer.)

See also[edit]


  1. ^ Horngren, Charles (2011). Accounting, 9th Edition. Upper Saddle River, New Jersey 07458: Prentice Hall. ISBN 0132569051.