Profit and Loss Concepts

Understanding the Concepts of Profit and Loss

In the context of mathematics, the term 'Profit and Loss' is a straightforward concept. You invest some money, and if you make more than you contributed, the additional money is profit. And if you make less money than you invested, you incur a loss.

Profit and Loss Concepts can be properly represented using the diagram below.

Listed below are the different Profit and Loss concepts:

1. Profit (P)

The profit is made by selling a thing for more than its cost price.

When the selling price surpasses the cost price in a transaction, you make a profit.

Example Problem

The Cost price of the umbrella was Rs. 80, and the Selling price of the umbrella was Rs. 100, so the profit made can be calculated by using the formula:

Profit = Selling price - Cost price.

Substituting the values, we get, Profit = 100 - 80 = 20.

Therefore, he makes a profit of Rs. 20.

2. Loss (L)

The amount the seller incurs after selling the product less than its cost price is mentioned as a loss.

When the cost price of a transaction surpasses the selling price, you incur a loss.

Example Problem

If a bag is bought for Rs. 300 and it is sold for Rs. 270, it means we incurred a loss of Rs. 30 in this transaction. Loss is calculated with the help of the formula:

Loss = Cost price - Selling price.

Taking the same example, the Cost price of the bag is Rs. 300 and the Selling price is Rs. 270,

Substituting the values, we get, Loss = 300 - 270 = 30. Therefore, there is a loss of Rs. 30 in the transaction.

Points to Remember

• For profit, the selling price should be more than the cost price
• For loss, the cost price should be more than the selling price
• The percentage value for profit and loss is calculated in terms of cost price

Quick Tip: Do you know? A basic understanding of percentage calculations will be very helpful in solving the Profit and Loss problems.

Terms related to Profit and Loss

When a person buys an article for a certain price and then sells it for a different price, he makes a profit or incurs a loss.

Various terms are associated with the entire process of making a transaction.

Let us understand the meaning of these terms one by one.

1. Cost Price

The price at which an article is purchased is called its cost price.

For Example

If Raju bought an umbrella for Rs. 80, this is the cost price of the umbrella. It is abbreviated as C.P.

2. Selling Price

The price at which an article is sold is known as the selling price of the article.

For Example

If Raju sold the same umbrella for Rs. 100, then Rs. 100 is considered the selling price of the umbrella. It is abbreviated as S.P.

3. Marked Price

Marked price is the price set by the seller on the label of the article. It is a price at which the seller offers a discount. After the discount is applied on the Marked price, it is sold at a reduced price known as the selling price.

4. Discount

To cope with the competition in business and boost the sale of goods, shopkeepers offer discounts to customers. Discount is calculated from the marked price. The difference between marked price and selling price is the discount.