What are Proceeds?

//What are Proceeds?
What are Proceeds? 2017-10-09T07:15:24+00:00

Definition: Proceeds are the cash received from the sale of goods or services and can be discussed as gross or net. Gross proceeds are the total amount of cash received, while net proceeds are the amount of cash received from the sale after paying for expenses, fees and taxes.

What Does Proceeds Mean?

What is the definition of proceeds? The difference between net and gross is expenses, fees, and taxes. If a company has a lot of expenses and overhead costs, its net will be way less than its gross. If, however, a business is very efficient and is able to reduce its costs, it may be able to hold onto more of its revenue. Comparing gross and net proceeds can help a business to understand how much profit is being lost to expenses and can even help with determining how profitable a company is. This ratio is called profit margin.

Some terms that are similar to proceeds are revenue, profit and income. These can be comparable to either net or gross proceeds depending on the context of the situation.

Let’s look at an example.

Example

As an example, if a company sells 1,000 products at a price of $100 per unit. The gross revenues from the sale would be $100,000. If the same company has expenses, fees and taxes which total $60,000, the net revenues of the sale would be $40,000.

If we assume that the expenses, fees and taxes for the company are always 60% ($60,000 / $100,000) of the gross revenues, the same company would have to more than double their sales, and sell $250,000 worth of product in order to have a net revenues of $100,000 ($250,000 – ($250,000 x 0.6) = $100,000).

Therefore, it is important to understand the difference between gross and net proceeds because it is very different for a company to report gross earnings of $100,000 versus net earnings of $100,000.

Summary Definition

Define Proceeds: Proceed means the revenue collected from selling a good or service.