Where does profit come from?
Profit is generally a financial benefit when expenses, costs and taxes are less than a revenue from a business activity. Profit is the money a company makes after all expenses, it is the same if it’s a small business or a multinational company. It is very important to be profitable to be able to invest in the business in the long run and staying healthy as a company. There are three kinds of profit that can be analyzed: gross profit, operating profit and net profit. They all give valuable information about the company and explain how the company performs, when the numbers can be analyzed using different periods of time or be compared against competitors in the same industry. All three kinds of profit can be found on the income statement.
The first one is gross profit. It is the sales minus the cost of the goods sold. The sales is usually the first line in the income statement and is very important for a business that is performing well. Cost of goods sold might be also referred as CGS. If you divide gross profit with sakes you get the gross profit margin, which is presented in percentages.
The second kind of profit is operating profit. It is calculated by deducting operating expenses from the gross profit. Operating expenses are expenses such as salaries, general and administrative costs. They are often referred as SG&A. If you divide operating profit with sales, you get the operating profit margin.
The last one is then net profit. It is the income left after deducting all expenses. In this case you need to deduct your taxes and interest as well. If you divide net profit with sales, you get the net profit margin.
http://www.investopedia.com/terms/p/profit.asp
Income statement and balance sheet
Income statement is an important document for accountants and owners of a business. It’s sometimes referred as profit and loss statement. It demonstrates the profitability of a company during a time period, like 3 months or a fiscal year. It can be important for a lender to research a company if it will issue a loan. It shows if a company is spending properly, if it has enough sales or if it is profitable. The income statement is in general the same for all companies, but is more complex if it’s a big business. The following should be included nonetheless:
A. Revenues and Gains
1. Revenues from primary activities
2. Revenues or income from secondary activities
3. Gains (e.g., gain on the sale of long-term assets, gain on lawsuits)
B. Expenses and Losses
1. Expenses involved in primary activities
2. Expenses from secondary activities
3. Losses (e.g., loss on the sale of long-term assets, loss on lawsuits)
Revenues from primary activities is often referred as operating revenues. They are revenues from the core activities, such as revenues for sale coffee and pastries in a coffee shop. Revenues from secondary activities is something not related with the core activities and is often referred as nonoperational activities. Rent or investments can fall into this category. These revenues are reported when the sale is done, not when the business receives its money. The gains are income that comes when other assets are sold, such as a company car.
Expenses involved in primary activities are such expenses that are needed to get normal business revenues. All money paid out of a company is not seen as expenses, such as paying a bank loan. Also investments are expenses, but they are divided often on many years, despite being paid at once.
Expenses from secondary activities are something not directly related with primary business function, such as interest on a loan. It is a finance function.
Losses is loss for sale of long-term assets, such as selling some property with a loss, it is not directly associated with the primary business function.
http://www.accountingcoach.com/income-statement/explanation/
http://www.accountingcoach.com/income-statement/explanation/2
A balance sheet is a financial statement where a company’s assets, liabilities and shareholder’s equity at a specific time is documented.
Assets are divided depending on their liquidity, that is how easily they can be converted into cash. Current assets can be converted into cash in one year and non-current or long-term takes longer
Current assets
Long-term assets
Liabilities is what a company owes to outside parties, such as debts, bills it has to pay and salaries to its workers. They are divided into current and long-term liabilities.
Current Liabilities
• Current portion of long-term debt
• Bank indebtedness
• Interest payable
• Rent, tax and utilities
• Customer prepayments
• Wages payable
• Dividends
Long-term Liabilities
• Long-term debt
• Pension Fund liability
• Deferred tax liability
Some liabilities are off-balance sheet, such as operating leases.
Shareholder’s equity is money attributable to shareholders. It’s also known as net assets, because it is total assets deducted the liabilities. Retained earnings are net earnings a company can reinvest in its operations or pay off debt. The rest of that money is distributed to shareholders. Treasury stock is a stock the company has repurchased or never issued. It can be sold later. Additional paid-in capital is what shareholders have paid in the company in excess over the common and preferred stock par value.
http://www.investopedia.com/terms/b/balancesheet.asp
Profit is generally a financial benefit when expenses, costs and taxes are less than a revenue from a business activity. Profit is the money a company makes after all expenses, it is the same if it’s a small business or a multinational company. It is very important to be profitable to be able to invest in the business in the long run and staying healthy as a company. There are three kinds of profit that can be analyzed: gross profit, operating profit and net profit. They all give valuable information about the company and explain how the company performs, when the numbers can be analyzed using different periods of time or be compared against competitors in the same industry. All three kinds of profit can be found on the income statement.
The first one is gross profit. It is the sales minus the cost of the goods sold. The sales is usually the first line in the income statement and is very important for a business that is performing well. Cost of goods sold might be also referred as CGS. If you divide gross profit with sakes you get the gross profit margin, which is presented in percentages.
The second kind of profit is operating profit. It is calculated by deducting operating expenses from the gross profit. Operating expenses are expenses such as salaries, general and administrative costs. They are often referred as SG&A. If you divide operating profit with sales, you get the operating profit margin.
The last one is then net profit. It is the income left after deducting all expenses. In this case you need to deduct your taxes and interest as well. If you divide net profit with sales, you get the net profit margin.
http://www.investopedia.com/terms/p/profit.asp
Income statement and balance sheet
Income statement is an important document for accountants and owners of a business. It’s sometimes referred as profit and loss statement. It demonstrates the profitability of a company during a time period, like 3 months or a fiscal year. It can be important for a lender to research a company if it will issue a loan. It shows if a company is spending properly, if it has enough sales or if it is profitable. The income statement is in general the same for all companies, but is more complex if it’s a big business. The following should be included nonetheless:
A. Revenues and Gains
1. Revenues from primary activities
2. Revenues or income from secondary activities
3. Gains (e.g., gain on the sale of long-term assets, gain on lawsuits)
B. Expenses and Losses
1. Expenses involved in primary activities
2. Expenses from secondary activities
3. Losses (e.g., loss on the sale of long-term assets, loss on lawsuits)
Revenues from primary activities is often referred as operating revenues. They are revenues from the core activities, such as revenues for sale coffee and pastries in a coffee shop. Revenues from secondary activities is something not related with the core activities and is often referred as nonoperational activities. Rent or investments can fall into this category. These revenues are reported when the sale is done, not when the business receives its money. The gains are income that comes when other assets are sold, such as a company car.
Expenses involved in primary activities are such expenses that are needed to get normal business revenues. All money paid out of a company is not seen as expenses, such as paying a bank loan. Also investments are expenses, but they are divided often on many years, despite being paid at once.
Expenses from secondary activities are something not directly related with primary business function, such as interest on a loan. It is a finance function.
Losses is loss for sale of long-term assets, such as selling some property with a loss, it is not directly associated with the primary business function.
http://www.accountingcoach.com/income-statement/explanation/
http://www.accountingcoach.com/income-statement/explanation/2
A balance sheet is a financial statement where a company’s assets, liabilities and shareholder’s equity at a specific time is documented.
Assets are divided depending on their liquidity, that is how easily they can be converted into cash. Current assets can be converted into cash in one year and non-current or long-term takes longer
Current assets
- Cash and cash equivalents
- Marketable securities: equity and debt securities that can be sold easily.
- Accounts receivable: money that customers owe the company
- Inventory
- Prepaid expenses: something of value already paid such as insuranceLong-term assets
Long-term assets
- Fixed assets: such as machinery
- Intangible assets: such as intellectual property
Liabilities is what a company owes to outside parties, such as debts, bills it has to pay and salaries to its workers. They are divided into current and long-term liabilities.
Current Liabilities
• Current portion of long-term debt
• Bank indebtedness
• Interest payable
• Rent, tax and utilities
• Customer prepayments
• Wages payable
• Dividends
Long-term Liabilities
• Long-term debt
• Pension Fund liability
• Deferred tax liability
Some liabilities are off-balance sheet, such as operating leases.
Shareholder’s equity is money attributable to shareholders. It’s also known as net assets, because it is total assets deducted the liabilities. Retained earnings are net earnings a company can reinvest in its operations or pay off debt. The rest of that money is distributed to shareholders. Treasury stock is a stock the company has repurchased or never issued. It can be sold later. Additional paid-in capital is what shareholders have paid in the company in excess over the common and preferred stock par value.
http://www.investopedia.com/terms/b/balancesheet.asp
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