Cambridge IGCSE Business (0264) syllabus reference: 5.3.1 and 5.3.2
Success criteria - by the end of this topic you can:
- explain what profit is and why it matters
- calculate gross profit and profit from a statement of profit or loss
- use a statement of profit or loss to make decisions
Why profit matters: reward for risk-taking, a source of finance (retained profit), a measure of success, and it attracts investors.
Key terms
Revenue - selling price per unit x number of units sold.
Cost of sales - the cost of the goods sold in the period.
Gross profit - revenue minus cost of sales.
Expenses - overhead costs such as rent, wages and advertising.
Profit - gross profit minus expenses.
Worked example: Statement of profit or loss
Revenue $420 000 - cost of sales $168 000 = gross profit $252 000.
Gross profit $252 000 - expenses $190 000 = profit $62 000.