WHAT IS NET PROFIT AND LOSS?
WHAT IS NET PROFIT AND LOSS?
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It is the difference between the gross profit or loss and the total indirect income/expenses of a business. If the difference is a positive value, it's Net Profit, and if the difference is negative, then it's Net Loss for a business during a particular accounting period.
FORMULA FOR COMPUTING NET PROFIT/ LOSS:
Net Loss (or Net Profit) = Revenues - Expenses
NET PROFIT
NET PROFIT
Net income, or net profit, is usually the last line item on a company's income statement, detailing the amount of money earned after taking into consideration all costs and expenses, such as operating costs, interest expenses, and taxes. Profit is the amount of revenue left after certain expenses have been deducted and can be reported at different levels, such as gross profit and operating profit.
Profit simply means the revenue that remains after expenses; it exists on several levels, depending on what types of costs are deducted from revenue.
Net income, also known as net profit, is a single number, representing a specific type of profit after all costs and expenses have been deducted from revenue.
Net income is the renowned bottom line on a financial statement.
NET LOSS
NET LOSS
A net loss is when total expenses (including taxes, fees, interest, and depreciation) exceed the income or revenue produced for a given period of time.
A net loss occurs when the sum total of expenses exceeds the total income or revenue generated by a business, project, transaction, or investment.
Businesses would report a net loss on the income statement, effectively as a negative net profit.
Many factors can contribute to a net loss including low revenues, strong competition, unsuccessful marketing campaigns, and increased cost of goods sold (COGS).
Factors Contributing to a Net Profit
One of the primary factors that contribute to the change in net profit margin is an increase or decrease of the price of the sold units.
Other factor that contributes to changes in a company's net profit margin. Although a company records inventory as an asset on the balance sheet, the company does not report the cost of a sale until the company has actually made the sale.
Factors Contributing to a Net Loss
Factors Contributing to a Net Loss
The most common factor that contributes to a net loss is a low revenue stream. Strong competition, unsuccessful marketing programs, weak pricing strategies, not keeping up with market demands, and inefficient marketing staff contribute to decreasing revenues. Decreased revenues result in decreased profits. When profits fall below the level of expenses and cost of goods sold (COGS) in a given time, a net loss results.
COGS also affects net losses. Substantial production or purchase costs of products being sold are subtracted from revenue. The remaining money is used for covering expenses and creating profit. When COGS exceeds funding for expenses, a net loss occurs.
Expenses contribute to net losses as well. Even when targeted revenue is earned, and COGS remains within limits, unexpected expenses and overspending in budgeted areas may exceed gross profits.
Excessive carrying costs are a type of expense that can contribute to net losses. These are the costs a company pays for holding inventory in stock before it is sold to customers.
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