PROFIT AND LOSS
John is a shopkeeper. He buys goods from the wholesaler and sells them in his shop at a higher price to earn profit. When he succeeds in selling at higher price, he makes profit else he suffers loss.
Let’s understand the concept in with following example:
If John buys sugar at rupees 50 per kg and sells at rupees 55 per kg, he makes profit of rupees (55 – 50 = 5) per kg. But due to some reason if he has to sell the sugar at rupees 48 per kg, he will make loss of (50 – 48 = 2) per kg.
From the above example we understand
- The price at which John buys sugar is the Cost Price. Therefore, cost price is the price at which an item is purchased.
- The price at which John sells sugar is the Selling Price. Therefore, selling price is the price at which an item is sold.
- When S.P > C.P, he makes profit or gain, i.e. Profit or Gain = S.P – C.P
- When S.P < C.P, he suffer loss, i.e. Loss = C.P – S.P
- Charges such as transportation cost, labor cost, salary or wages paid, installation charge etc. are called expenses and these has to be added to the C.P to get actual profit.
