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  • Monday November 25, 2020 Turnover and Net Profit Learning Objectives

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    Chikanma Okoisor
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    This document defines key terms related to business profits, including gross profit, net profit, turnover, purchases, sales, expenses, and mark-up. It provides an example to demonstrate how to calculate gross profit by taking the sales price and subtracting the cost of goods sold. Net profit is defined as gross profit minus total expenses. The document also explains how turnover is calculated by dividing the number of months in a year by the number of months it takes to replenish stock.

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    This document defines key terms related to business profits, including gross profit, net profit, turnover, purchases, sales, expenses, and mark-up. It provides an example to demonstrate how to calculate gross profit by taking the sales price and subtracting the cost of goods sold. Net profit is defined as gross profit minus total expenses. The document also explains how turnover is calculated by dividing the number of months in a year by the number of months it takes to replenish stock.

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    25 views3 pages

    Monday November 25, 2020 Turnover and Net Profit Learning Objectives

    Uploaded by

    Chikanma Okoisor
    This document defines key terms related to business profits, including gross profit, net profit, turnover, purchases, sales, expenses, and mark-up. It provides an example to demonstrate how to calculate gross profit by taking the sales price and subtracting the cost of goods sold. Net profit is defined as gross profit minus total expenses. The document also explains how turnover is calculated by dividing the number of months in a year by the number of months it takes to replenish stock.

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    © All Rights Reserved
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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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