Std 11, Commerce, Book-Keeping, Introduction to Book-Keeping, Module 16

Check our next module, it is 1.16 and that covers profit, loss and operating profit. Let’s understand profit, what is profit? Or write a short note on profit. Yes, now this is see-saw, let’s speak on this basis of this particular see-saw. On one side incomes are given, on the other side expenses are given. So, obviously incomes are more than expenses that means incomes are more. So, when incomes are more than expenses, it is profit. So, profit is excess of income for a particular period over expenses of such period. So, when income is more and expenses are less, so the difference is called as profit. So, profit is equal to we can calculate incomes and gains minus expenses and losses. Such profit can either be withdrawn by the proprietor for meeting his personal expenses or can be retained in the business in the form of reserves. So profit can be taken away by the proprietor for his own use or he can retain that particular profit in the business and if it is retained that is reserved. Now, such unwithdrawn profit retained in the business are reserves, it increases net worth that is owner’s equity of the proprietor. Now, owner’s equity you have already seen that is owner’s fund in the business, so that it can increased because of reserves.
Then opposite term loss, what is loss? Or short note on loss. So again that see-saw is there, now you can understand very easily here with this help see-saw. What will happen here, in this case now it is loss. I told you it is opposite term to profit, so obviously here expenses are more than income. So expenses are more than the differences are called as loss. Let’s see it is excess of expenses for a particular period over income of such period. Means expenses are more then in that case it is loss. See further, net loss is equal to so we have made the equation, expenses and losses minus incomes and gains. Such a loss of business it decreases net worth that is owner’s equity of the proprietor.
Then, after that next term is operating profit. What is operating profit? Or write short note on operating profit. Gross profit is excess of sales than cost of goods sold. What is cost of goods sold? COGS, it is total of expenses incurred till the goods are bought to the selling condition. So, we can say gross profit is equal to sales minus cost of goods sold that is very commonly termed as COGS. Now, operating profit is excess of gross profit over all expenses of the business. All expenses of business. Other expenses means expenses other than COGS. So other than COGS whatever expenses are there they are other expenses. All other expenses known as, operating cost which includes office and admin expenses, selling and distribution expenses and financial expenses. We can make the equation, operating profit equal to gross profit minus other expenses.

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