Glossary
Gross profit
The profit a business makes from buying and selling, before other running costs.
What it means
Revenue less cost of sales; the profit generated by trading before deducting operating expenses.
Example
Revenue of RM50,000 less cost of sales of RM30,000 gives gross profit of RM20,000.
Why it matters
Gross profit and the gross margin show how profitable the core trading activity is.
In practice
Gross profit comes straight after cost of sales in the income statement: revenue minus cost of sales. It shows how profitably the business buys and sells before any running costs. It also feeds the gross profit margin used to judge trading performance.
Suppose revenue is RM50,000 and cost of sales is RM21,000. Gross profit is RM29,000. The business must still cover expenses such as rent, wages and depreciation before it reaches its final profit.
Students often confuse gross profit with profit for the year. Gross profit stops after trading. Profit for the year adds any other income and deducts every running expense. A business can show a healthy gross profit but a small or even negative profit for the year if its overheads are heavy. This is why the income statement shows the two figures separately.
If you are unsure where gross profit ends and profit for the year begins, one of our teachers can go through a full income statement with you. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 5.1 Sole traders (page 15); sub-topic 6.2 Interpretation of accounting ratios (page 18).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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