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The Regulatory Framework of Financial Reporting

5.2 Key definitions

The statement of profit or loss is a summary of income generated and
expenses incurred to generate the profit over a period of time, usually a
year.

Income less expenses = profit or loss for the period.

 Gross profit

This is calculated by deducting cost of goods sold from the sales
revenue generated.

 Cost of goods sold

These are the direct costs attributable to production and is
calculated as per below.

Opening inventories + Purchases – Closing inventories

 Net profit

This is calculated by deducting any other running costs of the
business entity from the gross profit.

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