The Basic of Profit and Loss- Explained with Examples

In this post basic of Profit and loss are to be explained with examples. It is used to determine whether or not a transaction is profitable. Before we proceed to the profit and loss formula, we must first define the terms ‘selling price’ and ‘cost price.’

What is Cost Price

The cost price of a product is the price at which it is purchased.

What is Selling Price

The selling price of a product is the price at which it is sold.

What is the basic of Profit

If the selling price is higher than the cost price, the difference is referred to as profit. . In other words, if a product is sold for a higher price than it was purchased for, a profit is made.

What is the basic of Loss

If the selling price is less than the cost price, the difference is referred to as loss. In other words, if a product is sold for less than the price at which it was purchased, the transaction results in a loss.

Profit and Loss Formula

When the selling and cost prices are known, the basic profit or loss can be calculated using formula:

Profit = Selling price (S.P.) – Cost price (C.P.)

Loss = Cost price (C.P.) – Selling price (S.P.)

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Basic examples on Profit and Loss

Let us calculate the profit in a transaction where a product is purchased for $20 and sold for $50.

In this case, the cost price is $20 and the selling price is $50.

Profit is calculated as the difference between the selling price and the cost price.

According to Profit Formula:

Profit = Selling price (S.P.) – Cost price (C.P.)

P= 50 – 20 = 30.

Therefore, a profit of $30 is earned in the transaction.

Let us calculate the loss if a product is purchased at $60 and sold at $40.

In this case, the cost price is $60 and the selling price is $40.

As per Loss Formula:

Loss = Cost price (C.P.) – Selling price (S.P.)

Loss = 60 – 40 = 20.

Therefore, the loss incurred in the transaction is of $20.