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Gross Margin

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What is the definition of Gross Margin?
The financial metric calculated by subtracting the cost of goods sold from net sales, representing the portion of sales revenue that exceeds the direct costs associated with producing the goods sold by a company.
Using Gross Margin in an Example

For example, if a company's net sales are $1,000,000 and the cost of goods sold is $600,000, the gross margin would be $400,000. This figure represents the amount of revenue remaining to cover operating expenses and profit.

Using Gross Margin in a sentence

During the financial meeting, the CFO highlighted the improvement in gross margin as a key indicator of enhanced operational efficiency and cost management.

Related Terms

GAAP

Generally Accepted Accounting Principles (GAAP) are the conventions, rules, and procedures that define accepted accounting practice in the United States, established by the Financial Accounting Standards Board (FASB).
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GAAS

Generally Accepted Auditing Standards (GAAS) are a set of systematic guidelines used by auditors when conducting audits on companies' finances, ensuring the accuracy, consistency, and verifiability of auditors' actions and reports.
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GAO

The Government Accountability Office (GAO) is the auditing, evaluation, and investigative arm of the United States Congress. It is an independent, nonpartisan agency that reviews federal financial transactions and reports its findings directly to Congress.
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GASB

The Governmental Accounting Standards Board (GASB) is the independent organization that establishes and improves standards of accounting and financial reporting for U.S. state and local governments.
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Gain

A financial gain is the profit realized when the revenue received from a transaction exceeds the costs or when a security is sold for more than its purchase cost. The gain represents the difference between the sale price and the original cost.
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General Journal

A fundamental accounting record used to chronologically document all financial transactions of a business, allowing for the initial entry of transaction data.
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General Ledger

A comprehensive collection of a company's accounts that includes all assets, liabilities, equity, revenue, and expense transactions and balances.
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General Partnership

A business arrangement where two or more individuals, known as general partners, manage the business and are equally liable for its debts and obligations. There are no limited partners in a general partnership.
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Generally Accepted Accounting Principles (GAAP)

A set of conventions, rules, and procedures that define the accepted accounting practices in the United States at a particular time, established and updated by the Financial Accounting Standards Board (FASB).
Learn More

Generally Accepted Auditing Standards (GAAS)

Standards set by the American Institute of Certified Public Accountants (AICPA) that guide the auditor's professional qualities and judgment in the performance of audits and in the preparation of audit reports.
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Gift

A transfer of property from one individual to another without any expectation of payment or compensation, which may be subject to gift tax regulations.
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Going Concern

An accounting assumption that a business will continue to operate for the foreseeable future, without the need for liquidation or significant downsizing. This assumption implies that the entity has neither the intention nor the necessity to cease operations, curtail significantly the scale of its operations, or undertake a major reorganization.
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Going Private

The process by which a publicly traded company is transformed into a privately held entity. This occurs through the repurchase of shares by the company itself or acquisition by an outside private investor.
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Going Public

The process by which a privately held company offers its shares to the general public for the first time, typically through a stock exchange, involving registration with regulatory bodies such as the SEC.
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Goods Available for Sale

The total quantity of goods that a company has available for sale to customers in a given period, calculated as the sum of the beginning inventory plus the net cost of purchases made during that period.
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Goodwill

Goodwill is an intangible asset that represents the premium paid over the fair value of the net identifiable assets (tangible and intangible) and liabilities of an entity during its acquisition.
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Governing Documents

Official legal documents that outline the rules, responsibilities, and structures under which an entity operates. For a corporation, these include articles of incorporation and bylaws; for a partnership, the partnership agreement; for a trust, the trust agreement or trust indenture; and for an LLC, the articles of organization and operating agreement.
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Government Accountability Office (GAO)

The Government Accountability Office (GAO) is an independent, nonpartisan agency that works for the U.S. Congress, responsible for examining how taxpayer dollars are spent and providing Congress and federal agencies with objective, reliable information to help the government save money and work more efficiently.
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Governmental Accounting Standards Board (GASB)

The Governmental Accounting Standards Board (GASB) is the organization authorized to establish and improve standards of financial reporting for state and local government entities in the United States.
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Grantee

A person or entity to whom property, rights, or interests are legally transferred.
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Grantor

A grantor is an individual or entity that transfers property or creates a trust, and can also refer to a trader in the options market who earns premium income by selling options.
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Greenmail

A practice where a shareholder holds a large block of a company's stock and threatens a takeover, compelling the company to repurchase the stock at a premium to avoid the takeover.
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Gross Income

Gross income is the total income earned by an individual or a business from all sources before any deductions or taxes are applied.
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Gross Sales

The total amount of sales, both in cash and on credit, accumulated during a specific accounting period before any deductions are made.
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Guaranty

A legal commitment by one party to fulfill the obligations of a second party to a third party, should the second party fail to meet their obligations.
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