What is gross profit calculated as?

Gross profit is calculated as gross receipts minus the cost of goods sold. This measure represents the amount of revenue that exceeds the costs associated with producing goods or services sold. It is a key indicator of a company's financial health, as it shows how efficiently a business uses its resources to produce and sell its products.

While the incorrect options include various components related to gross receipts and expenses, they do not accurately reflect the formula for gross profit. For instance, including returns and allowances with gross receipts directly before subtracting the cost of goods sold would yield a number that reflects the net revenues but not the gross profit, which specifically focuses solely on the relationship between gross receipts and the cost of goods sold. Additionally, net income minus operating expenses pertains to calculating net profit rather than gross profit, which is a separate and important metric in financial analysis.