Which statement best defines gross profit?

Which statement best defines gross profit?

• A. Revenue minus cost of goods sold
• B. Net income after taxes
• C. Revenue minus operating expenses
• D. Gross margin

Answer: (A)

Gross profit shows how much revenue remains after you subtract the direct costs tied to producing the goods or services you sell. It’s calculated as revenue minus the cost of goods sold, which reflects pricing power and production efficiency before any operating expenses, taxes, or interest are considered. That’s why this statement is the best fit. It’s not net income after taxes, which is the company’s bottom-line profit after all costs and taxes. It’s not revenue minus operating expenses, which yields operating income. And gross margin is the gross profit expressed as a percentage of revenue, not the absolute dollar amount of gross profit.

Gross profit shows how much revenue remains after you subtract the direct costs tied to producing the goods or services you sell. It’s calculated as revenue minus the cost of goods sold, which reflects pricing power and production efficiency before any operating expenses, taxes, or interest are considered. That’s why this statement is the best fit.

It’s not net income after taxes, which is the company’s bottom-line profit after all costs and taxes. It’s not revenue minus operating expenses, which yields operating income. And gross margin is the gross profit expressed as a percentage of revenue, not the absolute dollar amount of gross profit.