What is the primary distinction between gross profit and net profit?

The primary distinction between gross profit and net profit lies in the factors that influence their calculations. Gross profit is the revenue that remains after subtracting the cost of goods sold (COGS), which includes direct production costs. Net profit, on the other hand, is often referred to as the "bottom line" and represents the income that remains after all expenses have been deducted, including operational expenses, taxes, interest, and other costs, from the total revenue.

This means that net profit provides a clearer picture of a company's overall profitability because it takes into account not just the cost of producing goods but also the operational and financial expenses that impact the final earnings of the business. Hence, the correct answer emphasizes that net profit includes deductions for taxes and interest, which are critical components in assessing the total profitability.

While it’s true that gross profit is typically higher than net profit due to the deducted expenses, and that only gross profit accounts for production costs, these statements do not capture the essence of the fundamental difference between the two terms. Moreover, the notion that net profit is fixed compared to the variability of gross profit is not accurate, as both can fluctuate based on other operational factors. Therefore, understanding that net profit includes a broader range of deductions accurately highlights its distinction