Types of Transactions

The main reason for establishing any business is to make a profit. Periodically therefore the businessman would want to ascertain the business profit or loss. To do this, certain values are computed.

These are:

• Cost of Sales: Cost of sales, which is also called the cost of goods sold, represents the actual cost price of an article.

• Mark up: This means increasing the price of something that you bought, before selling it, to enable you to make a profit.

• Turnover: This is the value of goods and services that an organisation sells, in a particular period of time.

• Profit and loss: Profit represents the gain made by a business within a given period of time, that is, if the business earns more revenue or income than what is expended, profit has been made. A loss is incurred when a business spends more than it earns within a given period of time.  

Types of Profit and Loss:

There are different types of profit or loss which can be calculated by a businessman. These are:

1. Gross profit and Gross Loss.

2. Net Profit and Net Loss.

Gross Profit is the actual profit made by a businessman. If the amount earned from sales is greater than the cost of goods sold, it is called Gross Profit.

Gross Loss is the direct opposite of gross profit. Gross loss is made if the total sales value is less than the cost of goods sold.

Net profit is the profit earned by the organisation, that is, the amount left after deducting all operating expenses, from the gross profit of the period.

Net Loss is the loss incurred by the business if operating expenses, of the period, are greater than the gross profit, and all revenue earned within the period.