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Financial statements

Gross profit

Gross profit is revenue minus the direct cost of producing the goods or services sold.

Reviewed by the Booksmrt bookkeeping teamLast reviewed 2026-07-27

How it works in the books

Gross profit shows what remains before operating expenses, interest, taxes, and owner-level items. The usefulness of the measure depends on consistent direct-cost classification.

Example

Revenue of $100,000 less $60,000 of cost of goods sold produces $40,000 of gross profit.

What can go wrong

Moving labor or materials between cost of goods sold and operating expense can change gross margin without changing net profit.

Compare Gross profit

Gross profit vs. net profitGross profit measures the amount left after direct costs of sales. Net profit measures what remains after operating expenses and other recognized costs. A business can have strong gross profit but weak net profit because overhead is too high.

Sources

Educational information only. Booksmrt provides bookkeeping services, not tax, legal, audit, or investment advice. Confirm material accounting and tax decisions with the appropriate professional.