What is net profit?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Net profit is the amount a business has left after all of its business expenses, including the cost of goods sold and overheads such as rent, wages, insurance and interest, are taken away from its income for a period. It is also called the bottom line, because it sits at the foot of a profit and loss statement.
Net profit builds on gross profit. Once the direct cost of sales is gone, every other running cost comes off too, from advertising and software subscriptions to bank fees. When those costs add up to more than the gross profit, the result is a net loss instead.
Because net profit is earned over a period, it does not tell you how much cash is in the bank. Sales customers have not yet paid for can count in net profit before the cash arrives, while stock bought ahead of need and the principal part of a loan repayment can take cash out without reducing net profit by the same amount.
In Australia
business.gov.au defines net profit as your total gross profit minus all business expenses, also known as your bottom line. Its glossary defines profit more broadly as the total revenue a business earns minus its total expenses.
Its guide to reviewing your financial health suggests a check at least once a year, including the profit and loss statement, which it says shows financial performance and profitability over time. Among the trends to look out for, it lists falling sales, low profit margins and more spending than you budgeted for.
Worked example
| Item | Amount (AUD) |
|---|---|
| Gross profit | 18,400.00 |
| Rent | 3,200.00 |
| Wages | 7,900.00 |
| Insurance | 450.00 |
| Advertising | 1,150.00 |
| Bank fees and interest | 310.00 |
| Total expenses | 13,010.00 |
| Net profit | 5,390.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Reading net profit as the amount of cash the business has available to spend.
- Recording drawings, personal expenses paid from the business account, as business expenses.
- Leaving out bills received but not yet paid at the end of the period when the books are kept on an accrual basis.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Review your financial health
business.gov.au, Australian Government. Current at 16 October 2026, released 20 May 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.