Profit and loss are discussed here.





Ron is a shopkeeper. He buys his goods either from the factory directly or from the whole seller. He then tries to sell each of goods or item at a higher price to earn money. If he succeeds, he makes a profit or gain or else he suffers a loss.



For example:

1. If Ron buys rice at $ 20 per kg and sells it at $ 23 per kg, he makes a profit of $ 3. (i.e., 23 - 20 = 3)

Cost price (CP) = $ 20,

Selling price (SP) = $ 23

Profit or Gain = $ 20



2. If Ron buys rice at $ 20 per kg and sells it at $ 18 per kg, he suffers a loss of $ 2 i.e., (20 – 18 = 2)

Cost price (CP) = $ 20,

Selling price (SP) = $ 18

Loss = $ 2



From this we understand:

(i) The price at which a man buys his goods is called the
Cost Price (CP).

(ii) The price at which a man sells his goods is called the
Selling Price (SP).

(iii) When the SP is greater than CP the man makes a Profit or Gain.

SP > CP → Profit = SP – CP

(iv) When the SP is less than CP the man suffers a Loss.

SP > CP → Loss = CP – SP



For example:

1. Ron bought rice worth $ 2000 and spent $ 200 for transporting it to his shop, $ 150 on getting it cleaned and $ 50 on packing.

Then total CP = 2000 + 200 + 150 + 50 = $ 2400.



(v) Transportation charges, labour charges, salaries etc. are called Overhead Expenses and these are always added to the cost price to get the total CP.