Net Proceeds
Net proceeds refer to the amount of money received from a transaction after all costs and expenses associated with that transaction have been deducted. This concept is widely used in finance and accounting and can apply to various transactions, such as the sale of an asset, issuance of securities, or even the revenue generated from a fundraising event.
In the context of selling an asset, such as a home or a car, the net proceeds would be the selling price minus any selling costs, such as broker fees, commissions, advertising costs, and any other associated expenses.
In the context of issuing securities, such as stocks or bonds, the net proceeds would be the funds raised through the issuance minus any issuance costs, such as underwriting fees, legal fees, registration fees, and other related costs.
In the context of a fundraising event, the net proceeds would be the total amount of money collected minus the cost of organizing and hosting the event.
The calculation of net proceeds helps individuals and businesses to determine the true profit or gain from a transaction, taking all associated costs into account.
Example of Net Proceeds
Suppose you sell your house for $300,000. However, in the process of selling the house, you incur several expenses. Here’s a breakdown:
- Real estate agent’s commission: $18,000 (typically around 6% of the sale price)
- Closing costs: $3,000
- Home repairs (requested by the buyer): $5,000
- Outstanding mortgage to be paid off: $200,000
To calculate your net proceeds, you would subtract all these costs from the sale price:
Net proceeds = Sale price – Agent’s commission – Closing costs – Repairs – Mortgage payoff
So your net proceeds would be:
Net proceeds = $300,000 – $18,000 – $3,000 – $5,000 – $200,000 = $74,000
In this example, even though the house sold for $300,000, after all associated expenses, the net proceeds – or the actual amount you ‘profit‘ from the sale – would be $74,000.
