Question

Differentiate between the following:

(a) Gross Profit

(b) Direct expenses and Indirect Expenses

Answer 1

a) gross profit
1.It is the excess of net sales over cost of purchase or manufacture (all expense relating to purchase or manufacture of goods) of goods.

2.It is not true profit of the business
3.It shows credit balance of the trading account
4.The progress of the business can be judged by the comparison of gross profit  with net sales

b) direct expenses

Expenses connected with purchases of goods are known as direct expenses. For example, freight, insurance, of goods in transit, carriage, wages, custom duty, import duty, octroi duty etc. Without incurring these expenses, it is not possible to bring the goods from the purchase point to the godown of the business. such expenses are collectively known as direct expenses.

Indirect expenses

All expenses other than direct expenses are assumed as in direct expenses. Such expenses have no relationship with purchase of goods. Examples of indirect expenses include rent of building, salaries to employees, legal charges, insurance of building, depreciation, printing charges etc. So