A seller must cover costs — Economics, 4–6 years
The money a seller receives is not all a gain. First, some of it pays for the materials and other things needed to make or offer the item.
Money in is not all profit
A seller receives money when someone buys an item, but the seller may have spent money first. The part left after paying those costs is the gain, or profit. If the costs are bigger than the money received, there is a loss instead.
Why look at costs?
Someone making or selling things needs to know whether the money coming in can pay for what was used. This problem led people to compare sales with costs. Without that comparison, a busy shop could seem successful while quietly losing money.
A simple profit example
A maker spends €2 on paper, glue and colours for one card. The card is sold for €5. Take away the €2 cost from the €5 received: €5 − €2 = €3. The €3 is the profit, before any other costs.
Sales money is not profit
It is understandable to call all the money received a gain because it has just arrived. But some of it already belongs to the supplier who provided the paper, food or tools. Subtracting costs shows what is really left for the seller.
In real small businesses
A bakery, craft stall or bicycle repairer compares money received with money spent on ingredients, materials or parts. This helps decide whether to keep offering something and what must be paid for next. The same idea works even when the business is very small.
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