OPERATING PROFIT AND NET PROFIT
OPERATING PROFIT AND NET PROFIT
Profit may
be divided into:
·
OPERATING PROFIT
·
NET PROFIT
Let’s study
in details:-
Operating
Profit is the profit earned through normal
operating activities of the business. It is calculated by deducting the
Operating Expenses from the Gross Profit.
|
Operating Profit = Gross Profit - Operating Expense |
Net Profit is the
profit earned through operating and non - operating activities of the
business.
Operating
Expenses are the expenses
incurred by an enterprise that are associated (incurred) with its operating
activities. For example, a retail stores main or operating activity is buying
and selling of goods. Therefore, cost of goods sold besides salaries paid to
staff in Purchase Department, salaries paid to sales staff or accountants,
electricity bill of ( whether operating or non- operating ) the store, etc.,
are operating expenses because without incurring these expenses, the enterprise
cannot carry out its operating activities. Operating expenses include salaries,
electricity expenses, selling and distribution expenses, cash discount allowed,
depreciation and amortization, rent, repairs and bad debts, etc.
Non-
operating Expenses are the
expenses which do not relate to the main activity of the enterprise such as
interest on loan, charity donation, loss on sale of fixed assets and loss by
fire or theft or damage, etc. Expenses,
Operating and Non- operating, are debited to profit and loss account.
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