Gross profit is presented on a multiple-step income statement prior to deducting sellling, general and administrative expenses and prior to nonoperating revenues, nonoperating expenses, gains and losses.
To illustrate gross profit, let's assume that a manufacturer's net sales are $60,000 and its cost of goods sold (using absorption costing) is $39,000. The manufacturer's gross profit is $21,000 ($60,000 minus $39,000). The gross profit ratio or gross profit percentage is 35% ($21,000 divided by $60,000).
Learn Accounting: Gain unlimited access to our seminar videos, flashcards, visual tutorials, exams, business forms, and more when you upgrade to PRO.