Can a business earn a gross profit but incur a net loss?

Answer 1

Yes. Gross Profit is the earnings left over after the cost of obtaining or making the good has been subtracted from the selling price of the good. Operating expenses such as the heating and lighting in your office are subtracted from the Gross Profit to give you an "Operating Income/Loss" figure. Finally, things such as Interest revenue or Interest expense are added or deducted from Operating Income to give you a Net Income/Loss.

For example. I buy 6 widgets at a cost of $1.10 each from my supplier, and resell them for $3.50 each. My bank statement shows interest revenue of $2, and I have a telephone bill for $60.

-Income Statement-

Sales $21 .00 ($3.50 x 6 widgets sold)

Cost of Goods Sold 6.60 ($1.10 x 6 widgets sold)

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Gross Profit $14.40

Operating Expenses:

Telephone Bill 60.00

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Operating Loss $(45.60)

Non-Operating Expenses:

Interest Revenue 2.00

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Net Loss $(43.60)

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