Profit and Loss for Class 10 and 12

When you hear the words profit and loss, they might seem easy to understand. But these concepts mean different things depending on whether you are talking about math or accounts. Even in real life, you might have thought about if any product is on sale/discount, then is the seller earning more (profit) or losing some amount.

Maybe you have calculated the total earnings of a doctor in a single day while we compared them after counting the number of patients they have. You all will get your answers and understand the difference between profit and loss in these two areas, using examples and explanations that make the ideas clear and relatable.

Profit and Loss in Math: The Basics

In math, profit and loss are straightforward ideas related to buying and selling items. They help you in finding how much money you gain or lose in a transaction. Before learning profit and loss let us look out at some of the basic but important definitions:

Cost Price (CP)

This is the price you pay to buy an item. It includes all the costs involved in getting the item ready for sale, such as manufacturing costs, shipping, and handling fees. In everyday terms, the cost price is what you spend to get an item, whether it's a product you will resell or ingredients for something you plan to make and sell, like cookies for a bake sale. For example: Imagine you decide to start a small business selling handmade candles. To make one candle, you spend ₹50 on wax, ₹20 on a mould, and ₹60 for another expense; the total cost price will be 130.

Selling Price (SP)

This is the price at which you sell the item to a customer. The selling price is typically higher than the cost price so that you can make a profit. For example, if you buy a book for₹200 and sell it for₹300, the₹300 is your selling price. The difference between the selling price and the cost price (₹100 in this case) is your profit.

Marked Price (MP)

Also known as the "list price," this is the original price set by the seller before any discounts are applied. For example, if a store has a jacket with a price tag of ₹1,000 but offers a 20% discount, the ₹1,000 is the marked price. The price is often set higher than the expected selling price so that there’s room to offer discounts, which makes customers feel like they’re getting a good deal.

Listing Price

This is similar to the marked price and is the price you see when an item is first put up for sale, especially online. It’s the price that’s advertised before any negotiations or discounts. For example, if you list your bicycle for ₹5,000 on a selling app, that’s the listing price. The final price could be different if a buyer negotiates a lower price or if you decide to offer a discount.

Profit

This happens when you sell something for more than it costs you to buy it. The formula is:

Profit = SP- CP

where SP refers to the selling price and CP is the cost price.

Profit Percentage:

Profit% = (Profit/CP)*100

Loss

This happens when you sell something for less than it costs you to buy. Here is the formula:

Loss= CP - SP

You can also calculate the profit or loss as a percentage of the cost price:

Loss Percentage:

Loss%= (Loss/CP)*100

Solving Example Problem of Profit and Loss in Maths

In math, you’ll usually be asked to find one of these values, like figuring out the selling price if you know the profit percentage. Here’s a quick example:

Example: If you buy a shirt for ₹500 and sell it at a 20% profit, what’s the selling price?

Solution:

Profit=(20/100)*500

= ₹100

Selling Price = Cost Price + Profit = 500+100 = ₹600

These problems are designed to help you practice basic arithmetic, percentages, and ratios.

Profit and Loss in Accounting

In accounting, profit and loss are more detailed and part of a bigger financial picture.

The Profit and Loss Statement

In accounting, profit and loss are recorded and shown in the Profit and Loss Account (or Income Statement).

Revenue: The money a business earns from selling goods or services.
Expenses: The costs of running the business, like rent, salaries, and utilities.

Profit or loss is calculated by subtracting total expenses from total revenue:

Net Profit: Net Profit = Revenue - Expenses
Net Loss: Net Loss= Expenses - Revenue

Accounting doesn’t just look at profit as a single number; it breaks it down. This breakdown helps businesses understand where their money is coming from and where it’s going.

Gross Profit: Sales minus the cost of goods sold (COGS).

Gross Profit = Sales - COGS

Operating Profit: Gross profit minus operating expenses like rent and wages.

Operating Profit = Gross Profit - Operating Expenses

Net Profit: What’s left after all expenses, including taxes and interest, are deducted.

Net Profit= Operating Profit - Taxes and Interest

This helps businesses understand where their money is coming from and where it’s going.

Key Differences Between Math and Accounting

Now, let’s quickly understand the key differences:

Simple vs. Detailed

Math: Simple calculations using formulas. In math, profit and loss are all about simple calculations using basic formulas. You focus on figuring out profit margins or losses for individual transactions, like buying and selling an item.
Accounting: Detailed recording and analysis of income and expenses. Accounting, Is not just about calculating profit for a single transaction but about understanding the financial performance of a whole business over time. Accounting involves recording every expense and revenue, leading to a clear picture of a company’s financial health. It’s about seeing everything in detail which includes long-term planning and strategic decision-making.

Single Transactions vs. Over Time

Math: Focuses on one transaction at a time, in math, you look at one transaction at a time. For example, you might calculate the profit from selling a product.
Accounting: Looks at profit and loss over a period, like a year. In accounting, profit and loss are monitored over a period, like a month or a year. This continuous tracking allows businesses to see trends, make predictions, and adjust their strategies based on the bigger picture.

Percentages vs. Financial Statements

Math: Often uses percentages to express profit or loss. Math often expresses profit and loss as percentages, which makes it easy to compare and understand how much you gain or lose from what you spend.
Accounting: Uses financial statements to give a full picture of a business’s finances, As your business grows, accounting becomes tough. It helps you keep track of all your finances, from managing payroll to preparing for taxes. Accounting gives you the knowledge you need to grow your business, manage resources, and plan for the future.

Why You Need to Know Class 12 Accounting and Class 10 Maths Rules?

Understanding profit and loss in both math and accounting is essential.

Math helps you with quick, everyday calculations, like figuring out discounts or profits from a sale. The math side is practical for everyday situations, like calculating discounts, determining profits from selling something or managing your budget.
Accounting gives you a deeper understanding of how businesses manage money, which is crucial whether you’re running your own business or managing your finances. It is important for long-term financial planning.

Whether running a business or managing your finances, accounting helps you see the bigger picture. It’s about making informed decisions that affect not just today’s profits but also your financial future.

Learning both gives you the skills to handle both your personal and business finances smartly.

How do we incorporate these formulas in real life?

Every formula of math might have some use in real life, but this one is very important to remember. Here is how we can use it:

Starting a Small Business

Imagine you start an online store selling handmade jewellery. At first, you’ll use math to price your items, making sure you’re covering costs and making a profit. But as your business expands, you’ll need to use accounting to keep a record of all your expenses, manage cash flow, and see if you’re truly making money after everything is accounted for. Accounting will also help you make decisions about whether to expand your product line or invest in marketing.

Managing Your Budget

Even if you’re not in business, understanding profit and loss helps you manage your finances. For example, if you earn ₹30,000 a month, you need to budget your expenses—like rent, groceries, and entertainment—to make sure you’re not spending more than you earn. Math helps you calculate your leftover money while accounting principles help you track your spending over time, plan for the future, and make smart financial choices.

Investing and Financial Planning

If you’re thinking about investing in stocks, real estate, or starting a business, knowing both math and accounting is essential. Math helps you compare investment options and calculate returns, while accounting gives you a deeper understanding of financial statements and the overall financial health of your investments. Whether you’re managing your finances or planning for bigger investments, these skills are crucial for making informed decisions.

Understanding profit and loss in math and accounting isn’t just for exams; it’s a life skill. Whether you’re working out a quick calculation or analysing financial statements, these concepts help you navigate the financial side of life. Keep learning, stay curious, and you’ll find that profit and loss are more interesting and useful than you might have thought!