In profit and loss, the activity of buying things from one place and selling them at another place is known as business.

Explanation I:

Sam is a shopkeeper. He buys the following articles from a wholesale market at the following rates:

**Article**

Water Bottle

Pen

Pencil Box

Lunch Box

Ball

**Purchased at**

$ 45

$ 10

$ 25

$ 30

$ 5

**Sold at**

$ 60

$ 25

$ 35

$ 55

$ 8

Rate at which an article is purchased is called Cost Price (C.P.)

Rate at which an article is sold is called Selling Price (S.P.)

Sam purchases the water bottle for $ 45. He sold it for $ 60.

Here, cost price = $ 45

Selling price = $ 60

Thus, earning $ 60 - $ 40 = $ 20 more

The extra money earned by selling an article is called profit or gain.

When Selling Price (S.P.) is greater than the Cost Price (C.P.) we have a gain (Profit).

Sam purchases the pencil box for $ 25. There were some defects in the pencil box.

So, he sold it for $ 20.

Here, Cost Price = $ 25

Selling Price = $ 20

Thus, lost $ 25 - $ 20 = $ 5

The money lost by selling an article is called Loss.

When Cost Price (C.P.) is greater than the Selling Price (S.P.) we have a loss.

Profit or Gain = S.P. - C.P. = Selling Price - Cost Price

Loss = C.P. - S.P. = Cost Price - Selling Price

Explanation II:

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.

**To find Cost Price or Selling Price when Profit or Loss is
given.**

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