Operating Profit Calculation An operating profit is the profit earned from the day-to-day operations of a sole proprietorship. It is calculated by subtractin...
An operating profit is the profit earned from the day-to-day operations of a sole proprietorship. It is calculated by subtracting the cost of goods sold from the revenue earned during a specific period.
Formula:
Operating Profit = Revenue - Cost of Goods Sold
Components of the Operating Profit:
Revenue: The total amount of money earned from the sale of goods or services during the accounting period.
Cost of Goods Sold: The cost of the goods and services that were sold during the period.
Example:
Let's say a sole proprietorship had the following transactions during the month of January:
| Date | Description | Amount |
|---|---|---|
| 1 | Sold product A | $100 |
| 2 | Purchased product B | $80 |
| 3 | Sold product B | $120 |
Calculating the Operating Profit:
Revenue: 120 = $220
Cost of Goods Sold: ($80)
Therefore:
This means that the operating profit for the month of January was 140 from its day-to-day operations during that period