Monday November 25, 2020 Turnover and Net Profit Learning Objectives

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Monday November 25, 2020

Turnover and Net Profit


Learning Objectives
Explain the difference between gross profit and net profit

Calculate gross profit and net profit

Calculate gross profit and net profit

Keywords
Sales

Purchases

Expenses

Every business or individual who is into business look forward to making profit because it is
the main reason for investing their money. Business thus can be broken down into five parts:
Purchases, Sales, Gross Profit, Expenses, Mark Up and Turnover.

Purchases
The acquisition of goods for the purpose of sales is known as Purchasing. The seller of
the goods determines the terms of trade; whether he or she is willing to grant the buyer
trade discount, delayed payments or he/she would require immediate payment. Trade
discount is the percentage that a seller is willing to remove from the total cost of goods
sold.

For Example

50 cartons of garri at #10,000 each: 50,000

12 packs of Pepsi at #500 each: 6,000

Total sales: 56,000

Discount allowed for paying in cash

10% [0.1×56,000] [5,600]

Amount payable 50,400


Sales
Sales is a term used to describe activities that lead to the selling of goods or services.
When a retailer buys goods, he/she wants to make profit. To make profit the retailer does
not sell goods for the same price that he/she paid for them, instead an amount is added to

the cost price. This amount is called Mark-Up. The mark up enables him or her to pay for
the expenses incurred in the selling process

Gross Profit
Gross profit is the amount of money made by a retailer after he/she had sold the goods to
the final consumer. Gross profit is calculated when the cost of goods is removed from sales
price.

Gross Profit= sales – cost of goods sold

For example, a retailer bought the following goods:

20 packs of chivita at #1,500 each: 30,000

20 bags of rice at #2,000 each: 40,000

10 cartoons of wine at #9,000: 90,000

Total cost: 160,000

Mark up 20% [0.2× 160,000]: [32,000]

Total sales: 128,000

Expenses:
Is the cost of a operations that a company Incurs in the course of a business.The expenses may
include the wages of sales men, electricity, transportation. Etc.

Mark Up
Mark up simply means the difference between the cost of goods and the profit of doing
business. It is the amount added to the total cost of goods or service in order to determine the
selling price and also make profit.

Net Profit
Net profit is the amount of money that is left after you subtract your total business expenses
from your total revenue. In determine the net profit, the retailer must remove from his gross
profit the overhead cost. Overhead cost are expenses incurred when doing business during a
given period of time
NET PROFIT= gross profit - expenses

Turn Over
Turnover simply means the number of times a retailer replenishes stock. If a retailer
replenishes stocks every four months, turnover stock would be three times in a year
Turnover= number of months in a year
number of months new stock is bought

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