For many people, it remains not completely clear what is the profit of the enterprise and income. And if you delve into this topic, then a lot of clarifying terms pop up: gross profit, EBITDA, net profit.
It turns out that when publishing their figures, economists, accountants, and statisticians have in mind strictly defined meanings of each term. Such definitions are given in the state legislative documents, and their knowledge is mandatory for all reporting employees. But since the sphere of profitability and profitability is of interest to many non-professionals, it would be useful to understand the essence of the concepts under discussion.
What is revenue?
The most easily understood concept modern economy- revenue. Indeed, revenue is the funds received by an organization or private entrepreneur in payment for a product or service. It seems that everything is simple.
However, revenue has its own characteristics at the time of its recognition as such. In everyday life, revenue is understood as real money at the time the seller receives it - revenue is determined by payment. There is a name for this case: the cash method of accounting for revenue. That is, the company can give its goods to the buyer with a deferred payment, and until the money is credited to the current account, there will be no revenue. The downside of the cash method is the need to treat all advances received as revenue.
Another, more common way of accounting for revenue is usually used in large companies. This is an accrual method of accounting for revenue. That is, revenue is recognized as such already when the goods are transferred to the buyer or at the time of signing the act of services rendered, regardless of the actual date of receipt of money. In this case, advances for delivery are not considered revenue.
Revenue can be gross and net. Gross revenue is the total amount of money received for a product or service. Or total cost exchange agreements, if we are talking about barter deals. This indicator is of little interest, since there are mandatory taxes and excises, as well as duties, which are directly included in the price of a product (service). Hence, they must be extracted from the buyer's payment and returned to the state.
So another indicator appears - net proceeds. It characterizes the activity of the enterprise, regardless of the composition and size of taxes and excises included in the sale price. Net revenue is always indicated in one of the main reporting accounting documents- income statement.
What is income?
Income is the amount by which the capital of the enterprise grows. How can he even grow? One way is by making contributions by the owners of the enterprise, and the other is by its activities. After all, any enterprise is created with the sole purpose of generating income.
The classification of income and expenses is such an important matter that statesmen have devoted many documents to it. The most significant of them are tax code and PBU. The Regulations on Accounting “Income of Organizations” provide full explanations of the methods of formation and types of income of an enterprise.
Without delving into the intricacies of these monumental works, it can be noted that operating income is net sales proceeds. Revenues can be equal to revenue, but this is a rare case. Typically, an enterprise carries out a variety of activities, including different types income.
In addition to income from direct statutory activities, the company may receive other income. For example, the percentage of content own money on deposit or penalties collected from partners. These incomes are classified as other, but they also participate in the formation of the profit of the enterprise.
What is gross profit?
By summing up the income received from various kinds activities and reducing them by the costs associated with them, receive a gross profit. For example, the main activity for the sale of goods or services generates income, and the cost of these goods or services is an expense. The difference between them will give the gross profit for the main activity. The same approach applies to the determination of gross profit from other activities.
Interestingly, in trade, gross profit from the main activity is the difference between the selling price of goods and their cost. And for the industry, this indicator is more difficult to calculate, the cost includes many cost elements that are taken into account according to special rules.
Gross margin is a favorite indicator for comparing the performance of different businesses. In addition, you can determine the gross profit from various activities within the same enterprise and show the efficiency of output different goods. Gross profit is very popular with bank employees when calculating the creditworthiness of an enterprise. However, for the owners of the enterprise, another indicator is more important - net profit.
What is Net Income?
The result of all operations in the activities of the enterprise for certain period expressed by the indicator net profit. It is obtained by reducing gross profit by the sum of all costs paid out of it. Such costs are classified according to the rules specified in the laws. In general, this is income tax, fines that the company must pay, loan interest and other operating expenses.
Gross profit minus these expenses creates the base from which dividends are accrued to the owners (shareholders) of the enterprise.
It is the net profit that shows the final effect of the enterprise, which is displayed in the main reporting document accounting - balance sheet.
Other types of income - EBIT and EBITDA
Importance state regulation in the formation of net profit is difficult to overestimate. In fact, the state sets the rules of the game, regulating the costs by which an enterprise has the right to reduce its profits until the tax is charged on it. These costs, as well as the amount of income tax, may differ by state or even by area within each country.
If an analysis of the activities of enterprises operating in different countries or when different systems taxation, no conclusions can be drawn on the basis of net profit. Therefore, other types of profit are used for comparison: gross, or specially cleared. Cleared earnings include EBIT (earnings before taxes and interest) and EBITDA (earnings before depreciation, taxes and interest).
First acquaintance with the main economic categories the work of the enterprise took place. Now you know what profit and income are and how revenue differs from them.
The difference between the cost of a product or service sold and the revenue received from the sale.
Gross profit differs from operating profit in that the latter does not include the cost of tax deductions, costs and other financial losses.
The concept of gross profit
Gross profit is one of the intermediate varieties of profit, which is displayed in financial reporting. Thus, it is calculated by accounting as the difference between total revenue and the cost of goods or services.The cost of goods sold is directly related to financial investments that form their cost. The latter is the sum material costs, wages to the work team, rent of premises and other investments in production. Gross profit shows the profitability of the implemented commercial activities, and allows you to understand how profitable funds are spent on creating a product or service.
To determine the amount of gross profit, it is necessary to subtract from the proceeds received from the sale of products, the costs of its production and sale. Revenue includes all finances that were received through the sale of goods in the main line of business of the company. Tax added value is not taken into account when accounting for gross profit.
The cost of a product or service combines all the costs that accompanied the process of their creation and sale. When providing services, the company providing them considers the costs associated with the duties of the employees providing them.
In the accounting report, gross profit is usually indicated at the end of the reporting period. It can be a month, a quarter or a year. Also, this indicator, if necessary, can be calculated for any period of time.
Gross Profit Formula
So, in order to calculate the gross profit in practice, it is necessary to use the following formula: where:PR is Gross Profit
B - revenue from the sale of products or the provision of services,
C is the cost of goods or services. These values can be presented both in monetary and percentage terms, depending on the goals and methods of management accounting.
The following formula can be used to determine the gross profit by sales turnover:
where:PR \u003d T x P / 100 - C
PR - gross profit
T - an indicator of the turnover of goods
R - allowance for the estimated cost
C is the cost of products and services.
Estimated cost is calculated by the formula:
In this formula, T (surplus) is an indicator of the trade margin, which is calculated as a percentage.P \u003d T (nadb) / 100 + T (nadb)
Income and expense items used in the above formulas can be included in completely different components, depending on the characteristics of the company and its financial accounting. For example, the revenue of a company manufacturing products includes the costs of providing services and manufacturing goods. AT trading company revenue may include income from products sold, as well as from the provision of paid services, for example, when products are delivered to a customer. Companies engaged in the rental of real estate receive income from renters' fees.
Some species accounting policy involve the inclusion in gross profit of income that can be received from the sale of property at the disposal of the company.
The cost of producing a product or providing a service may also differ depending on the characteristics of the firm. So, for a manufacturing company, this indicator consists of the cost of purchasing materials, fuel, energy, working tools, equipment; employee payroll and related tax payments; management costs production process and depreciation of equipment.
A trade organization includes the following costs in the cost price: the price of the purchased goods, the costs associated with transporting products to the place of trade, salary deductions, costs for packaging, storage and sale of products.
Few from ordinary people will be able to answer the question of how income differs from profit. Both concepts mean coming Money and the possibility of their investment in the future. And how these indicators relate to revenue is also a mystery to the unsavvy in economic issues reader. However, this oversight is easy to eliminate, it is enough just to understand the terminology.
What is meant by the term "revenue"
The first is the difference between revenue and accounting (that is, explicit, calculated) costs.
Pay attention to economic costs, which include the implicit costs associated with an alternative in conditions of limited resources, then we will already talk about economic profit: revenue minus economic costs.
Consider an example. Since the head of a passenger transportation enterprise at one time chose the path of an entrepreneur, and not the path of an employee with savings in a bank, he formed alternative economic costs, such as:
- savings in a bank account that were invested in business development - 60 tr.
- lost interest from the stay of money in the bank - 6 tr.
- lost wage from work for hire per year - 180 tr.
It turns out that the annual profit of 240 tr., calculated by us earlier, should be reduced by the amount of economic costs:
240 tr. - (180 t.r. + 60t.r. + 6t.r.) \u003d -6 t.r.
This business for an entrepreneur will not pay off in a year. If the accountant of the enterprise congratulates the head on annual profit, then the entrepreneur himself will assess the performance of the business as satisfactory.
Summary
Let's summarize and answer the question of how income differs from profit, what is the difference between them and revenue, highlighting the main points in thesis:
- Revenue and income are always positive economic indicators. Profit can be positive (the company is profitable), negative (the company is unprofitable) and equal to zero (the company is at the break-even point).
- Income includes profit, as well as the cost of wages for employees of the enterprise and the social component of domestic policy.
- Profit is a calculated indicator. It can take into account implicit economic costs. Income can always be calculated and entered into the balance sheet.
- Another difference between income and profit is the legal link: commercial enterprises work to achieve profit, non-profit enterprises should not receive profit at all, and municipal enterprises can be profitable, but subsidizing only involves achieving break-even. All enterprises can receive income.
Thus, the disclosure of small terminological nuances of the profitable part of the activities of enterprises will allow readers to become more savvy in economic matters.
