Profit may be divided into two ,i.e.,
1.Operating profit .
2.Net profit .
Operating profit means from operating activities of the business . It is excess of gross profit over operating expenses . Gross profit is excess of revenue ,i.e., net sales over cost of goods sold.
Operating expenses include office and administrative expenses , selling and distribution expenses , cash discount allowed, interested on bills payable and other short term debts and so on .
Net sales = cash sales + credit sales - sales return .
Operating profit = Net sales - Operating cost
= Net Sales - ( Cost of goods sold + administration and office expenses + selling and Distribution expenses )
Or
Operating profit = Net Profit + Net operating Expenses - Non Operating Income .
Net Profit means excess of revenue ( whether operating or non operating ) over expenses and losses ( wheather operating or non - operating ). In other words , net profit is arrived by deducting from operating profit non - operating expenses and adding non- operating income .
Expense which are not associated with the operation of the business are called Non - Operating Expenses . They include interest on loan , charities and donations , loss on sale of fixed assets , extraordinary losses due to theft , loss by fire and so on .
Similarly , non - operating incomes are added while computing net profit . Non - operating incomes are those incomes which are not associated with the operation of the business. They include , receipt of interest , rent divided , profit on sale of fixed assets etc .
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