Explain how to determine gross profit on an income statement by selecting the correct statement below.
Question: Explain how to determine gross profit on an income statement by selecting the correct statement below.
To determine gross profit on an income statement, you need to subtract the cost of goods sold (COGS) from the net revenue. Net revenue is the total amount of money generated from sales, and COGS is the direct costs associated with producing the goods or services. Gross profit reflects the earnings remaining after accounting for the variable costs of production. The formula for gross profit is:
$$\\text{Gross Profit} = \\text{Net Revenue} - \\text{COGS}$$
The correct statement below is:
- Gross profit is calculated by subtracting the cost of goods sold from net revenue. Net income is then calculated by subtracting the remaining operating expenses of the company. Net income is the profit earned after all expenses have been considered, while gross profit only considers product-specific costs of the goods sold.
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