{"id":191,"date":"2024-09-06T16:47:20","date_gmt":"2024-09-06T16:47:20","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/gross-profit\/"},"modified":"2024-09-18T19:47:04","modified_gmt":"2024-09-18T19:47:04","slug":"gross-profit","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/gross-profit\/","title":{"raw":"Gross Profit","rendered":"Gross Profit"},"content":{"raw":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\r\n<ul>\r\n \t<li>Define gross profit and gross profit percentage<\/li>\r\n<\/ul>\r\n<\/section>&nbsp;\r\n\r\nGross profit is also called gross margin and sometimes profit margin. Just for the sake of consistency, we\u2019ll call it gross profit. It\u2019s not an account; it\u2019s a calculation that appears on the income statement:\r\n<p style=\"padding-left: 30px;\">[latex]\\text{Sales Revenue}-\\text{Cost of Goods Sold}=\\text{Gross Profit}[\/latex]<\/p>\r\nWe\u2019ll talk about the rest of the multiple-step income statement at the end of Module 8. For now, we can use our earlier example of baseball bats to illustrate this simple calculation.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"row\">Sales Revenue<\/th>\r\n<td>$ 15<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Cost of Goods Sold<\/th>\r\n<td>$ 10<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Gross Profit<\/th>\r\n<td>$\u00a0 5<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nAnd the gross profit percent is simple [latex]\\dfrac{\\text{Gross Profit}}{\\text{Sales Revenue}}[\/latex].\r\n\r\nIn this case, [latex]\\dfrac{5}{15}[\/latex], which is [latex]\\dfrac{1}{3}[\/latex], or .3333, or 33.33%.\r\n\r\nHere are just the top three lines from <a href=\"https:\/\/ir.homedepot.com\/~\/media\/Files\/H\/HomeDepot-IR\/2020\/2019_THD_AnnualReport_vf.pdf\" target=\"_blank\" rel=\"noopener\">Home Depot, Inc.\u2019s annual report<\/a> for 2019:\r\n<table class=\"fin-table acctstatement\"><caption>THE HOME DEPOT INC.\r\nCONSOLIDATED STATEMENTS OF EARNINGS<\/caption>\r\n<thead>\r\n<tr>\r\n<th><em>in millions, except per share data<\/em><\/th>\r\n<th>Fiscal 2019<\/th>\r\n<th>Fiscal 2018<\/th>\r\n<th>Fiscal 2017<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Net sales<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0110,225<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0108,203<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0100,904<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of sales<\/td>\r\n<td class=\"r\">72,653<\/td>\r\n<td class=\"r\">71,043<\/td>\r\n<td class=\"r\">66,548<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Gross Profit<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n37,572\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n37,160\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n34,356\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNote that the gross profit percent for each year is as follows:\r\n<div align=\"left\">\r\n<table><caption>Home Depot Gross Profit %<\/caption>\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">2019<\/th>\r\n<th scope=\"col\">2018<\/th>\r\n<th scope=\"col\">2017<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>34.09%<\/td>\r\n<td>34.34%<\/td>\r\n<td>34.05%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nIt\u2019s pretty consistent and tells you that for every dollar in sales the company makes, on average, it clears about $0.34 (34 cents) that then goes to pay all the other costs, like overhead on the building, and taxes, and employee wages.\r\n\r\nNote that for the 2019 fiscal year (that actually ended on February 2, 2020\u2014but we\u2019ll discuss that in a later module) the revenues were over $110 billion. ($110,225,000,000 which has been rounded to the nearest million).\r\n\r\nNext, we\u2019ll look more closely at the differences and similarities between the periodic system of recording cost of goods sold and the perpetual method.\r\n\r\n<section class=\"textbox tryIt\" aria-label=\"Try It\">[ohm2_question hide_question_numbers=1]25162[\/ohm2_question]\r\n[ohm2_question hide_question_numbers=1]25163[\/ohm2_question]<\/section>","rendered":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\n<ul>\n<li>Define gross profit and gross profit percentage<\/li>\n<\/ul>\n<\/section>\n<p>&nbsp;<\/p>\n<p>Gross profit is also called gross margin and sometimes profit margin. Just for the sake of consistency, we\u2019ll call it gross profit. It\u2019s not an account; it\u2019s a calculation that appears on the income statement:<\/p>\n<p style=\"padding-left: 30px;\">[latex]\\text{Sales Revenue}-\\text{Cost of Goods Sold}=\\text{Gross Profit}[\/latex]<\/p>\n<p>We\u2019ll talk about the rest of the multiple-step income statement at the end of Module 8. For now, we can use our earlier example of baseball bats to illustrate this simple calculation.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<tbody>\n<tr>\n<th scope=\"row\">Sales Revenue<\/th>\n<td>$ 15<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Cost of Goods Sold<\/th>\n<td>$ 10<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Gross Profit<\/th>\n<td>$\u00a0 5<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>And the gross profit percent is simple [latex]\\dfrac{\\text{Gross Profit}}{\\text{Sales Revenue}}[\/latex].<\/p>\n<p>In this case, [latex]\\dfrac{5}{15}[\/latex], which is [latex]\\dfrac{1}{3}[\/latex], or .3333, or 33.33%.<\/p>\n<p>Here are just the top three lines from <a href=\"https:\/\/ir.homedepot.com\/~\/media\/Files\/H\/HomeDepot-IR\/2020\/2019_THD_AnnualReport_vf.pdf\" target=\"_blank\" rel=\"noopener\">Home Depot, Inc.\u2019s annual report<\/a> for 2019:<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>THE HOME DEPOT INC.<br \/>\nCONSOLIDATED STATEMENTS OF EARNINGS<\/caption>\n<thead>\n<tr>\n<th><em>in millions, except per share data<\/em><\/th>\n<th>Fiscal 2019<\/th>\n<th>Fiscal 2018<\/th>\n<th>Fiscal 2017<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Net sales<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0110,225<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0108,203<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0100,904<\/td>\n<\/tr>\n<tr>\n<td>Cost of sales<\/td>\n<td class=\"r\">72,653<\/td>\n<td class=\"r\">71,043<\/td>\n<td class=\"r\">66,548<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Gross Profit<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n37,572<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n37,160<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n34,356<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Note that the gross profit percent for each year is as follows:<\/p>\n<div style=\"text-align: left;\">\n<table>\n<caption>Home Depot Gross Profit %<\/caption>\n<tbody>\n<tr>\n<th scope=\"col\">2019<\/th>\n<th scope=\"col\">2018<\/th>\n<th scope=\"col\">2017<\/th>\n<\/tr>\n<tr>\n<td>34.09%<\/td>\n<td>34.34%<\/td>\n<td>34.05%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>It\u2019s pretty consistent and tells you that for every dollar in sales the company makes, on average, it clears about $0.34 (34 cents) that then goes to pay all the other costs, like overhead on the building, and taxes, and employee wages.<\/p>\n<p>Note that for the 2019 fiscal year (that actually ended on February 2, 2020\u2014but we\u2019ll discuss that in a later module) the revenues were over $110 billion. ($110,225,000,000 which has been rounded to the nearest million).<\/p>\n<p>Next, we\u2019ll look more closely at the differences and similarities between the periodic system of recording cost of goods sold and the perpetual method.<\/p>\n<section class=\"textbox tryIt\" aria-label=\"Try It\"><iframe loading=\"lazy\" id=\"ohm25162\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=25162&theme=lumen&iframe_resize_id=ohm25162&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><br \/>\n<iframe loading=\"lazy\" id=\"ohm25163\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=25163&theme=lumen&iframe_resize_id=ohm25163&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/section>\n","protected":false},"author":6,"menu_order":5,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Gross Profit\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":186,"module-header":"- Select Header -","content_attributions":[{"type":"original","description":"Gross Profit","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/191"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":4,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/191\/revisions"}],"predecessor-version":[{"id":1104,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/191\/revisions\/1104"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/186"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/191\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=191"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=191"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=191"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=191"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}