Understanding the Term of Profit and Loss

Profit and loss are a crucial part of mathematics and are needed in day-to-day life. It is needed in all kinds of exams and helps to find out the basic sums of gain and loss. It is a must in calculating the business revenues and daily expenses. The profit and loss sums are necessary. The profit and loss formulas are easily applied and do not require complications or extra steps. 

Definition of Profit and Loss

Going by the standard profit and loss statement, if the total revenue is more than the total expenditure, then the transaction is said to be in profit. Similarly, if the total revenue is less than the total expenditure, then a loss is incurred. From a business or a financial perspective, profit and loss formulas are used to understand whether a profit or a loss is incurred while selling a particular product.

Before going into the depths of the profit and loss formula, two basic terms, the cost price, and the selling price need to be discussed first. The price at which a particular item is purchased is called the cost price. 

Whereas, the price at which a particular item is sold is known as its selling price. If the cost price is more than the selling price, then the difference between both the prices is known as loss. Similarly, if the cost price is less than the selling price, then the difference between both the prices is known as profit.

Profit and Loss Formula

Important profit and loss formula is listed down below:

• Profit (P) = Selling Price (SP) – Cost Price (CP)

• Loss (L) = Cost price (CP) – Selling Price (SP)

• Profit percentage (P%) = ( Profit / Cost Price ) * 100

• Loss percentage (L%) = ( Loss / Cost Price ) * 100

Using the above formulas, we can derive a relation between profit and loss percentage with the selling and cost price.

1) If selling price > cost price, then

Selling Price = [ ( 100 + P%) / 100] * Cost Price

Cost Price = [ 100 / (100 + P% ) ] * Selling Price

2) If cost price > selling price, then

Selling Price = [ ( 100 – L%) / 100] * Cost Price

Cost Price = [ 100 / (100 – L%) ] * Selling Price 

Solved Examples

1) Ram purchased 10 pairs of trousers at Rs 40 and sold 8 of them at Rs 35. Find out the profit or loss percentage.

Answer:

The cost price of 10 pairs of trousers = Rs 40

Cost price of 1 trouser = Rs 40/10 = Rs 4

The selling price of 8 pairs of trousers = Rs 35

The selling price of 1 trouser = Rs 35/8

As selling price > cost price, a profit is observed.

Therefore,

Profit = (35/8)- 4 = 3/8

Profit % = [ (3/8) / 4] * 100 = 9.375%

2) Sam has a sweet shop where the profit is 320% of the cost price. The distributor increases the cost of sweets by 25% but Sam keeps the selling price of the sweets constant. Calculate what percentage of the selling price is profit.

Answer:

Let the cost price be Rs 100

Profit becomes Rs 320.

Therefore selling price = Cost Price + Profit = 100+320 = 420

New cost price = 125% of Rs 100 = Rs 125

Selling price remains constant = Rs 420

Selling price > new cost price, therefore profit is observed.

Profit = Rs (420 – 125) = Rs 295

Hence, Profit % = [ (295/420) * 100 ] * 100 = (1475/21) % = 70% (approx)

3) A tailor sells 85m of cloth at Rs 8925 at a profit of Rs 15 per meter of cloth. Find out the cost price of 1 meter of cloth.

Answer:

Selling price of 1 metre of cloth = Rs 8925/85 = Rs 105

Cost price of 1 metre of cloth = Selling price of 1 metre of cloth – profit on 1 metre of cloth = Rs 105 – Rs 15 = Rs 90.

Conclusion 

Thus, profit and loss are needed everywhere and every time. It is the basic math everyone should know. Profit and loss help us to have a better idea of our pockets. What are the expenses and what are the gains? Even if we run to shop to buy something or invest in the commodity business, the profit and loss sums are necessary. It is the basic maths that we need for our business to run and to measure our balance of loss and maximize our profit margins.