What is the main difference between gross profit and net profit?

The main difference between gross profit and net profit lies in their calculations and what they represent in the financial statements of a business. Gross profit is specifically calculated by taking a company's total revenue and subtracting the cost of goods sold (COGS). This figure reflects how efficiently a company is producing and selling its goods, as it measures the basic profitability of the products sold without considering other operational expenses such as salaries, rent, and utilities.

Net profit, on the other hand, represents the total profit of a business after all expenses have been deducted from total revenue. This includes not only the COGS but also operating expenses, interest, taxes, and any other costs associated with running the business. Thus, net profit gives a more comprehensive view of a company's profitability, providing insight into how well the company is managing its overall expenses.

By understanding that gross profit is focused solely on the direct costs associated with production, while net profit provides a broader picture encompassing all business expenses, it becomes clear that the correct choice highlights this distinction accurately.