Profit and Loss and a few Formulas

Our first lesson was about profit and loss. This two are exactly the opposite. Profit is what you gain in your business and loss is of course what you lose. In our first class of business math, we studied about these facts and also their formulas. At first i was like "formulas = memorization = headache". I never enjoyed memorizing formulas. I always think of math formulas are not useful and not worth knowing when it comes to the real world. But what i learned in this lesson that it is actually important to know and apply in the real world especially when you are running a business.

If the shop sells a thing for more than they paid for it, then the difference is the profit. So the formula for solving your  profit is: Profit = Selling Price - Cost price. If the shop sells a thing for less than they paid for it, then the difference is the loss. So the formula for solving your loss is: Loss = Cost price - Selling price. (Click 1ink for examples)


In our  profit and loss lesson we also studied about Gross Profit, Gross Sales, Net Profit, Net Sales, Refunds, Allowances, Goods Sold and Operating Expenses. Here are their definitions (most of these definitions are from investorwords.com)
Gross Profit- Calculated as sales minus all costs directly related to those sales.
Gross Sales- is the actual amount received for selling the goods.
Net Profit- often referred to as bottom line, net profit is calculated by subtracting a company's total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time (usually one year). Also known as net income or net earnings.
 Net Sales- Gross sales minus returns, discounts and allowances.
Refunds- the return of retail goods of a customer for his/her money back.
Allowances- funds allocated periodically for a started purpose.
Operating Expenses- an expense arising in the normal course of running a business, such as electric bill.

Formula given for these:
Gross Sales - Sales Returns and Allowances = Net sales
Nets Sales - Cost of Goods Sold = Gross Profit
Gross Profit - Operating Expenses = Net profit


Other important facts in our lesson is Inventory. The definition of this is: A company's merchandise, raw materials, and finished and unfinished products which have not yet been sold. These are considered liquid assets, since they can be converted into cash quite easily. There are various means of valuing these assets, but to be conservative the lowest value is usually used in financial statements.

The securities bought by a broker or dealer in order to resell them. For the period that the broker or dealer holds the securities in inventory, he/she is bearing the risk related to the securities, which may change in price.

Formula given for Inventory:

Beginning Inventory + Purchases = Goods for Sale

Goods for Sale - Ending Inventory = Costs of Goods Sold

Knowing these Formulas are not just important in Business Math class, when we have seat works, home works etc. it is also very important to know in real life when you are running your own company or business. It helps you to find out what you gain or what you lose in your business and helps you solve the problems that you are dealing with, good or bad. That is why we have to keep in mind of these Formulas and remember them as a helpful thing for running your business and not a burden in class.