Enterprises as separate producers receive cash proceeds from the sale of their products. This revenue does not indicate a profit. To determine the financial result of the final activity of the enterprise, you need to compare the proceeds with all the costs of production and sales, attributable to the cost of production.
If the cost is lower than revenue, then the financial result indicates a profit. If the revenue is equal to the cost, then the financial result is equal to zero, that is, the company only managed to cover the costs of production and sales. If costs are higher than revenue, then the company remains at a loss. This indicates a negative financial result.
Thus, profit is the main goal of entrepreneurial business. Revenues and profits of the enterprise are correlated as follows.
The company's income is an indicator of an increase in economic benefits, which is expressed in the form of asset inflows or a decrease in liabilities, which in total lead to an increase in the company's own capital (with the exception of cases of an increase in it due to contributions from owners).
Revenues are classified into the following groups: income from the sale of products, other operating income (income from the rental of assets, foreign exchange differences), financial income (from participation in capital, investment activities, interest, dividends), other income from investments, asset sales.
The profit of the enterprise is the main part of the cash savings that is created by enterprises of all forms of ownership. It reflects the financial result of the economic business of the organization. The profit of the enterprise as an indicator of production efficiency allows us to determine the volume and quality of products, cost level, labor productivity. On the other hand, arriving stimulates the strengthening of commercial calculation and intensifies production.
In terms of profit, you can judge the plan and evaluate the economic activity of the enterprise.
The profit of an enterprise is distinguished by the following types of profit: gross, operating, profit from ordinary activities and profit remaining after taxation.
The financial result of the enterprise is calculated in this sequence.
1. The net income from the sale of products (services) is determined by deducting from the gross income from the sale of products VAT and other taxes and fees.
2. The gross profit (loss) is calculated. It is defined as the difference between the net income from sales and the cost of sales of finished products.
3. The financial result from operating activities is calculated.
4. The profit (loss) from pre-tax activities is calculated.
5. Profit (loss) from ordinary activities.
6. Profit (loss) is calculated taking into account emergency activities.
The profit of the enterprise as the final financial result of the economic activity represents the difference between the sum of income and the cost of production and sales operations taking into account losses from all types of business operations.
The net profit of the enterprise for the reporting period is determined by adjusting the profit from ordinary activities for the amount of income and expenses that appears in emergency circumstances.
Subsequently, net profit is allocated to the capitalized and consumed part. The capitalized part is the funds allocated for investment in the development of production and the formation of reserve and insurance funds. The consumed part is spent on the payment of corporate rights to owners, material incentives for employees and the formation of social needs funds. The remainder forms retained earnings, through which equity is financed.