In accounting, net profit can be calculated by making profit and loss account. It is the excess of gross profit over indirect expenses.
In simple words, net profit shows the amount which a company earns after paying all expenses. If we deduct tax, dividend and reserve from this income, we can transfer it to balance sheet as retained earning for future development of business.
Formula of calculating net profit
Net profit = Gross profit - indirect expenses
Retained Earning = Net profit - tax - reserve - dividends
In simple words, net profit shows the amount which a company earns after paying all expenses. If we deduct tax, dividend and reserve from this income, we can transfer it to balance sheet as retained earning for future development of business.
Formula of calculating net profit
Net profit = Gross profit - indirect expenses
Retained Earning = Net profit - tax - reserve - dividends
