Which of the following is true for calculating the gross profit?

Gross Profit = Sales – (Purchases + Direct Expenses)

The correct answer is option 3- Gross Profit = Sales – (Purchases + Direct Expenses).

The excess of sales over purchases and direct expenses is called gross profit. If the amount of purchases including direct expenses is more than the sales revenue, the resultant figure is gross loss. The computation of gross profit can be shown in the form of equation as : Gross Profit = Sales – (Purchases + Direct Expenses). The gross profit or the gross loss is transferred to profit and loss account.