In a transaction, if there is neither profit nor loss, then…
The correct answer and explanation is:
Correct Answer:
The cost price is equal to the selling price.
Explanation:
In any business transaction involving the sale of goods or services, two critical values determine whether there is a profit, loss, or neither. These values are the cost price (CP) and the selling price (SP).
The cost price is the original price at which a seller purchases or produces an item. The selling price is the price at which the item is sold to a customer. The financial result of the transaction depends on the relationship between these two prices:
- If the selling price is greater than the cost price, a profit is made.
- If the selling price is less than the cost price, a loss is incurred.
- If the selling price is equal to the cost price, there is no profit or loss.
Therefore, in a transaction where there is neither profit nor loss, it means the cost price is exactly equal to the selling price. This situation implies that the seller did not gain any extra money from the sale, but also did not incur any financial loss. The revenue earned from the sale just covers the original expense or investment made on the item.
For example, if a shopkeeper buys a shirt for $20 and sells it for the same amount, the transaction yields no profit or loss. The amount spent is completely recovered, but no additional earnings are generated. This can happen intentionally, for example, during a clearance sale, or unintentionally, when market conditions force the seller to price products at cost to remain competitive or avoid excess inventory.
Understanding this balance is essential in accounting, business planning, and pricing strategies, as it highlights the break-even point where expenses are recovered but no financial gain is achieved.