What is the formula for gross profit?

• A. Gross Profit = Net Sales minus Cost of Goods Sold
• B. Gross Profit = Net Sales minus Operating Expenses
• C. Gross Profit = Revenue minus Cost of Goods Sold
• D. Gross Profit = Net Sales minus Selling Expenses

Answer: (A)

Gross profit is the amount earned from selling goods after accounting for the direct costs of those goods. It shows how much money is left from sales to cover other expenses and profit. The standard way to calculate it is net sales minus the cost of goods sold. Net sales means the sales revenue after returns, allowances, and discounts, which reflects the actual revenue from customers. Subtracting cost of goods sold removes the direct costs tied to producing or acquiring the goods sold, leaving the gross profit.

The other ideas don’t fit this measure: subtracting operating expenses would give operating profit, which includes costs beyond the direct production costs. Using revenue instead of net sales can be close, but many definitions specify net sales for this formula. Subtracting selling expenses would further reduce the amount and is not part of gross profit, as selling expenses are considered part of operating expenses.