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Profit & Loss(Meaning, Formulas & Examples)

October 1, 2022

This post is also available in: हिन्दी (Hindi)

When you buy an item from a shop, the shopowner charges some amount for an item. The price at which the shopowner sells an item is not always the same as she/he bought the item. The difference between the price at which an item is bought and sold is known as profit or loss.

Every company and business works on the fundamental concept of profit and loss. It is very important to familiarize yourself with profit and loss, not only to run a business or company but also to keep an account of your own expenditure.

Let’s understand what profit and loss are and how it is calculated and learn about the profit and loss formula.

Profit and Loss Related Terms

When a person buys an article for a certain price and then sells it for a different price, she/he makes a profit or incurs a loss. There are various terms that are associated with this transaction, such as cost price(C.P.), selling price (S.P.), discount, marked price(or list price), profit, and loss. First, let’s start to understand these terms.

Cost Price(C.P.): The price at which an article is bought is called its cost price. For example, if a person buys a notebook for ₹$25$, this is called the cost price of the notebook and is abbreviated as C.P.

Selling Price(S.P.): The price at which an article is sold is called its selling price. For example, if a person sells the same notebook for ₹$30$, this is called the selling price of the notebook and is abbreviated as S.P.

Profit: When, in a transaction, the selling price is greater than the cost price, it means a person earns a profit, In the above example, the person made a profit of ₹$5$, as the selling price(₹$30$) is greater than the cost price(₹$25$) of the notebook.