Profit and loss — Economics, 7–10 years
What remains after a seller pays the costs of making a sale. Economics, 7–10 years.
What is left after costs
A business receives money when it sells something, but it also pays for materials, tools, rent or transport. Profit is what remains when all these costs are taken away from the money received. If the costs are greater, the result is a loss. A sale alone does not guarantee profit.
Why count the costs
Someone starting a small business needs to know whether the plan can continue. Counting only the money coming in can hide important payments and lead to a nasty surprise. Comparing income with costs helps a seller choose a price, decide what to make and see whether the idea is working.
A lemonade stand
Maya sells 20 cups of lemonade for €1 each, so she receives €20. Lemons, sugar, cups and ice cost €13 altogether. She calculates €20 − €13 = €7, so her profit is €7. If the costs had been €23, the same sales would have produced a €3 loss instead.
Sales are not profit
It is tempting to call all the money in the cash box profit, because that is the amount everyone can see. But some of it must pay for what was bought or used to make the product. A seller can make many sales and still lose money if each sale brings in less than its share of the costs.
Making a sensible plan
A bakery, a phone app or a stall at a school fair can use profit and loss to check its plan. The people running it add expected sales and subtract expected costs before deciding. They may change the recipe, the quantity or the price, but a calculation cannot promise that customers will come.
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