# Determine the profit in this equation..

10 replies
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Haha.. hey Warriors, my mind is FRIED here.. help me figure out the "math" behind this.

If I take \$25 out of my pocket and I buy something, then resell it for \$75. Then immediately take that \$75, buy three more \$25 items and sell each of them for \$50. What's my profit?
• \$125.......
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• Go on I'll bite

\$125

\$150 you have minus the \$25 out of your pocket
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• \$125. You start with \$25 and end up with \$150. Subtract your initial investment from your gross and you have \$125. At least that's how I would do it. The boyz in DC would probably be able to realize \$1.476 Million on that transaction. :rolleyes:
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•  Originally Posted by travlinguy \$125. You start with \$25 and end up with \$150. Subtract your initial investment from your gross and you have \$125. At least that's how I would do it. The boyz in DC would probably be able to realize \$1.476 Million on that transaction. :rolleyes:

Ok, so lets make this equation MUCH larger... say I take that \$150 and double down again, and again, and again... I end up with \$150,000.

Is my profit really \$149,975 (minus operating costs)?

And if so, why can I write off the cost of good sold on my taxes?
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•  Originally Posted by mr2monster Is my profit really \$149,975 (minus operating costs)?
Yes, as I see it. You've parlayed your \$25 into a large sum. But \$25 was still your initial starting investment. As for taxes, who the hell knows what them cats in Washington would take?
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•  Originally Posted by mr2monster Ok, so lets make this equation MUCH larger... say I take that \$150 and double down again, and again, and again... I end up with \$150,000. Is my profit really \$149,975 (minus operating costs)? And if so, why can I write off the cost of good sold on my taxes?
You're first example was almost correct:

Gross Sales = \$150 + 75 = 225
Costs = \$100 (initial \$25, then \$25X3 other items)
\$225 - \$100 = \$125 profit.

When you say "end up with 150,000," if you mean that's your profit then COGS would have already come out of total revenue (if selling for \$50 and cost \$25 then thats \$300,000 in sales, less \$150,000 COGS = \$150,000 profit).
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• Ok... that's exactly what I thought...

I've got this dude arguing that I only have \$50 profit because he doesn't know order of operations or something.

He says:

Gross Sales = \$150
Costs = \$100 (initial \$25, then \$25X3 other items)

\$150 - \$100 = \$50 profit.

It got me confused enough to be like, WTF?! haha..

Reasoning was that if I took the \$25 item, sold it for \$75, put that \$75 in my pocket, then I'd have to spend \$75 to make \$150. Treating it as two cycles, not one, if that makes sense...

Argument included that anything ever earned past your initial investment (minus operating costs) could be considered "profit" if businesses did it the way I did.

Thoughts?
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•  Originally Posted by mr2monster Argument included that anything ever earned past your initial investment (minus operating costs) could be considered "profit" if businesses did it the way I did.
So his argument is that profit does not equal earnings - (investment + costs)?

He isn't looking at it logically and probably not writing down the formula he imagines.

You start with \$25. That is given. At the end, no matter how you do it on paper, you end up with \$150 in your pocket. 3x \$50 that is also given in the problem.

So, taking out the initial \$25, of the new \$125 of surplus cash you have, how much is profit?

And if it isn't all profit, what part is profit and what do you call the other part?
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•  Originally Posted by onSubie So his argument is that profit does not equal earnings - (investment + costs)? He isn't looking at it logically and probably not writing down the formula he imagines. You start with \$25. That is given. At the end, no matter how you do it on paper, you end up with \$150 in your pocket. 3x \$50 that is also given in the problem. So, taking out the initial \$25, of the new \$125 of surplus cash you have, how much is profit? And if it isn't all profit, what part is profit and what do you call the other part?
Profit is profit regardless of how much you had in your pocket to begin. Using the profit of the first sale to buy inventory for the other sales doesn't make the equation any different.

In accounting, this would look like this:
(keep in mind all numbers are running totals)

Start
Cash: 25
Revenue: 0
Expenses: 0
Profit: 0

Sale 1
Cash: (25 -25 for inventory, +75 for sale) = 75
Revenue: 75
Expenses: 25
Profit: 50

Sale 2
Cash: (75 - 75 for inventory, + 150 for sales) = 150
Revenue: 225
Expenses: 100
Profit: 125

So yes you have \$ 150 in your pocket (125 more than you had to start = profit).
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•  Originally Posted by mr2monster Haha.. hey Warriors, my mind is FRIED here.. help me figure out the "math" behind this. If I take \$25 out of my pocket and I buy something, then resell it for \$75. Then immediately take that \$75, buy three more \$25 items and sell each of them for \$50. What's my profit?
Well, are you using a cash accounting system or an accrual accounting system?

Based on this single scenario, your profit at the end is \$125. Most companies are find with basic cash accounting. You have your income and your expenses, with the goal of that difference being a large positive number.

Don't be fried, and don't over-think it. Next thing you know you'll give us a baseline budget increase next for your year of operations, cut a few percent from it and tell us how you saved money with your drastic and extreme cuts.
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