Accounting Profit Formula Explained

Accounting profit formula is used to calculate profit that incurred after selling the goods. Profit can be defined as the difference between the cost price and the sale price of a product where sale price is always greater than the cost price. However in terms of accounting profit can be called to the net amount that is left with the business after settling all the expenses of the business.

While calculating the accounting profit accountants do not include opportunity costs that are vital part of costs in calculating profit in economics. In terms of accounting profit is the net difference between the income received and expenses paid. The formula of accounting profit can be described as under

Accounting Profit= Gross Profit – Total Expenses to gain the gross profit


Gross Profit = Gross Sales/ Total Revenue

Total Expenses= Operational Expenses + Miscellaneous Costs

Gross Profit is calculated by deducting the amount received from cost of gross sales from the revenue of sales. Gross profit is presented in the income statement at the upper end of the balance sheet. Gross profit is followed by the operational profit that is calculated by subtracting operational expenses from the gross profit. The final step is to calculate the net profit that is calculated by deducting operational and sundry expenses from the gross profit. The accounting profit that is calculated is taxable so in income statement two entries of profit are made that are net profit before taxes and net profit after taxes. Finally the accounting profit percentage is calculated by dividing the amount of gross sales revenue with the net profit calculated.



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