Gross profit

Gross profit/loss is calculated by retailers and wholesalers to determine whether the basic mark-up on cost is sufficient cover operating costs. Retailers and wholesalers use the following formula determine their gross profit/loss for the period

gross profit or gross loss = sales less cost of goods sold.

It is important to note that when the profit and Joss statement is prepared, sales returns and allowances are deducted from sales before deducting cost of goods sold. The above formula can be amended thus

gross profit or gross loss = net sales less cost of goods sold.