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All 24 Flashcards — Calculating profit
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Question
Define net profit.
Answer
Net profit is gross profit minus operating expenses.
💡 Hint
Gross profit − expenses.
Question
State the formula for gross profit.
Answer
Gross profit = Revenue − Cost of goods sold (COGS).
💡 Hint
Revenue minus direct costs.
Question
State the key difference between profit and cash.
Answer
Profit is revenue minus costs over a period. Cash is the actual money available in the bank at a point in time.
💡 Hint
Profit is an accounting measure; cash is money in the bank.
Question
Define gross profit.
Answer
Gross profit is sales revenue minus cost of goods sold (COGS).
💡 Hint
Revenue − COGS.
Question
Define profit.
Answer
Profit is the financial surplus remaining after all costs are deducted from revenue.
💡 Hint
Revenue minus costs.
Question
State the basic formula for profit.
Answer
Profit = Revenue − Costs.
💡 Hint
Simple core formula.
Question
Give two examples of operating expenses.
Answer
Rent, wages, utilities, marketing, insurance, depreciation.
💡 Hint
Overheads.
Question
Give one reason a profitable business might have cash flow problems.
Answer
Customers may not have paid yet (credit sales), so profit is recorded but cash has not been received.
💡 Hint
Think: timing, credit sales.
Question
State the formula for net profit.
Answer
Net profit = Gross profit − Expenses (overheads).
💡 Hint
Gross profit minus overheads.
Question
Why is profit important for most businesses?
Answer
Profit provides a reward for risk-taking, funds future growth, and ensures long-term survival.
💡 Hint
Risk + growth + survival.
Question
A business makes $20,000 profit but customers still owe $25,000. Why might it struggle to pay suppliers?
Answer
Because the profit includes credit sales that are not yet cash, so it may not have enough liquid funds to pay suppliers on time.
💡 Hint
Profit can include unpaid sales.
Question
Gross profit = $40,000. Expenses = $25,000. Calculate net profit.
Answer
Net profit = $40,000 − $25,000 = $15,000.
💡 Hint
Subtract overheads.
Question
What costs are included in COGS?
Answer
Direct costs such as raw materials, direct labour and purchase cost of stock.
💡 Hint
Direct costs only.
Question
Which profit measure reflects trading efficiency: gross profit or net profit?
Answer
Gross profit, because it focuses on revenue and direct costs of goods sold.
💡 Hint
Trading = buying/selling.
Question
A business has revenue of $80,000 and total costs of $65,000. Calculate profit.
Answer
Profit = $80,000 − $65,000 = $15,000.
💡 Hint
Subtract total costs.
Question
Which profit measure reflects overall performance after overheads?
Answer
Net profit, because it deducts operating expenses from gross profit.
💡 Hint
Overall = after all operating costs.
Question
Revenue = $100,000 and COGS = $60,000. Calculate gross profit.
Answer
Gross profit = $100,000 − $60,000 = $40,000.
💡 Hint
Subtract COGS.
Question
What does net profit show?
Answer
It shows overall business performance after all costs are deducted.
💡 Hint
Bottom line.
Question
Can a business have cash but not be profitable? Explain briefly.
Answer
Yes. For example, it may have received a bank loan or sold an asset, creating cash inflow even if operating profit is low or negative.
💡 Hint
Loans or asset sales can boost cash.
Question
Name one non-cash item included in profit but not cash flow.
Answer
Depreciation.
💡 Hint
Common non-cash expense.
Question
What is a very common exam mistake when calculating or explaining profit?
Answer
Confusing revenue with profit, or confusing profit with cash flow.
💡 Hint
Revenue ≠ profit; profit ≠ cash.
Question
Why can a business be profitable but still fail?
Answer
Because it may not have enough cash to pay short-term debts, even if it makes profit on paper.
💡 Hint
Cash ≠ profit.
Question
What does gross profit show about a business?
Answer
It shows how efficiently the business is trading — buying and selling products.
💡 Hint
Trading efficiency.
Question
Why might a business have high gross profit but low net profit?
Answer
Because operating expenses are too high and reduce the final profit.
💡 Hint
Overhead problem.
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Full study notes for Calculating profit
Topic 3.3 hub
Costs and revenues
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