What term describes the surplus after all expenses have been paid out of gross profit?

What term describes the surplus after all expenses have been paid out of gross profit?

• A. Net profit
• B. Operating profit
• C. Gross profit
• D. Net loss

Answer: (A)

Profits at different stages are built up from revenue by deducting different sets of costs. The description “surplus after all expenses have been paid out of gross profit” points to the final figure remaining after every type of cost has been subtracted from gross profit. That is net profit. It equals gross profit minus all other expenses (operating costs, interest, taxes, etc.), and it represents the company’s bottom-line profitability for the period. Explain why the others don’t fit: operating profit comes after operating expenses but before interest and taxes, so it isn’t after all expenses. Gross profit is just revenue minus cost of goods sold, not after all other expenses. Net loss would occur if expenses exceeded revenue, giving a negative result, not the surplus described.

Profits at different stages are built up from revenue by deducting different sets of costs. The description “surplus after all expenses have been paid out of gross profit” points to the final figure remaining after every type of cost has been subtracted from gross profit. That is net profit. It equals gross profit minus all other expenses (operating costs, interest, taxes, etc.), and it represents the company’s bottom-line profitability for the period.

Explain why the others don’t fit: operating profit comes after operating expenses but before interest and taxes, so it isn’t after all expenses. Gross profit is just revenue minus cost of goods sold, not after all other expenses. Net loss would occur if expenses exceeded revenue, giving a negative result, not the surplus described.