Gross Profit is the most important part of the segment of the income statement. Gross Profit measures how much an entity profits from its core operations. The gross profit formula is: Net Income - Cost of Goods Sold/Cost of Sales. By subtracting only Cost of Goods Sold/Cost of Sales, it allows outside users of the financial statements to assess how profitable an entity really is from actually producing their product or providing the service.
Example:
Adequate Disclosure has the following information pertaining to its financial statements:
- Calculate the Gross Profit.
