Imagine you are in a race. Many hurdles come by. If you cross all the hurdles seamlessly, you save a lot of time. That is an advantage to you.
Similarly, if you get stuck in a hurdle, you would end up losing a few of your valuable time, making it a disadvantage for you.
In business, we call such advantages and disadvantages as profit and loss.
The dealer invests money on the goods and services. At the end of the business transaction, he either makes more money than the investment or lesser money than the investment.
The dealer can also make same invested amount. In that case, the invested amount and the amount made becomes equal. Therefore, there would be neither profit nor loss.
When we invest money on a commodity, we make more money than the investment at the end of the sale. The excess money we make is the profit or gain.
The shoemaker invests \(Rs.15000\) in his business, and he ends up making \(Rs.20000\) at the end. The excess amount of \(Rs.5000\) is the profit made by the shoemaker.
Amount invested \(=\) \(Rs.15000\)
Amount made \(=\) \(Rs.20000\)
Profit is when the amount made is higher than the amount invested.
So, Profit \(=\) Amount made \(-\) Amount invested
\(=\) \(20000\) \(-\) \(15000\)
In this case, there is a profit of \(Rs.5000\)
When we invest money on a commodity, we make lesser money than the investment at the end of the sale. The lost amount of money is the loss.
The fruit-seller invests \(Rs.1000\) in his business. But he makes only \(Rs.900\) at the end of his business. Here, \(Rs.100\) is the loss.
The amount invested \(=\) \(Rs.1000\)
The amount made \(=\) \(Rs.900\)
Here, the amount made is lesser than the amount invested.
Therefore, the fruit-seller has incurred a loss.
Loss \(=\) Amount invested \(-\) Amount made
\(=\) \(1000\) \(-\) \(900\)
Therefore, there is a loss of \(Rs.100.\)