Business profit is the amount remaining after expenses have been subtracted from the income of the business within a specified period of time. The period of time could be stated in monthly, quarterly, or annual terms. Types of profit include gross profit, net profit, and retained profit.
The first type of business profit is called gross profit, which is the excess of revenue from sales less the amount of direct costs — costs to create the products or prepare them for sale. This is referred to as cost of goods sold. These costs could include the materials purchased to manufacture products, transportation of materials into the production facility, direct labor to produce them, and distribution costs. The easiest way to determine cost of goods sold is to start with the value of the beginning inventory, add the amount of purchases during the period in question, and then subtract the value of the ending inventory.
Net profit is the difference between gross profit and operating expenses. Operating expenses differ from direct expenses because they are general business expenses that cannot be directly attributed to the products that are being sold. This is sometimes called overhead expense.
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