The leading goal of the enterprise is income and profit. What is the difference between profit and revenue?
Income is the main source of financial reserves, both an individual enterprise and the state budget. The use of income as a key indicator of performance makes it possible to establish the real economic effect of the performance of each individual enterprise.
Profit - a key financial indicator that reflects the result of the organization. Income and profit are interconnected. In market conditions, net income is presented in the form of profit. The unity of the functions that income and profits perform in their interdependence makes them elements of management that reflect the economic interests of society, enterprises and each employee. In this regard, the problem of the formation and redistribution of income, as well as its solution in practice, ensures the dependence of the enterprise on the amount of income received and remaining at the disposal.
In a market economy, enterprises are relatively independent. Having set a price for their products, they sell it, receiving cash proceeds in return. However, this does not mean profit. In order to establish what the economic effect of the enterprise is, it is necessary to compare the proceeds from the production and sale of products with the costs incurred, this is the cost of production.
The company in its activities always sets itself the goal of income and profit, but not in all cases receives it. In order for this to happen, revenue must exceed cost, in this case, the economic result of the enterprise indicates a profit. In the case when the revenue covers the cost of production, we can only talk about the reimbursement of the costs of production. In this situation, there is no profit, and hence the source of development of the enterprise. If the costs exceed the amount of proceeds from the sale of goods and services, the organization incurs losses, which indicates the negative position of the organization and presumptive bankruptcy.
The total revenue of the enterprise includes income and profit. Profit continues to participate in the turnover, as part of it is included in the payment of tax payments. As a result, the company has the amount of net profit, that is, the difference between the final financial result and the amount of taxes paid.
What are gross income and gross profit?
Gross income is the income, calculated in monetary terms, which the company usually receives from the sale of products. A synonym for the concept of “gross income” is the concept of “turnover”. Under the amount of gross income, it can be assumed either its entire amount, or for a specified period of time.
Gross profit represents the difference between net income and the cost of manufacturing sales. At the same time, the cost does not include salaries, taxes and other overhead costs.
As part of the transition to market conditions, income and profit have become the driving force of entrepreneurial activity. It is they who determine what is best to produce, how, to do it and for which customers to produce products. Revenue generation is a key goal of the enterprise, as it serves as a source of its development. The increase in income forms the basis for self-financing, which is the main condition for economic activity. This is based on the principle of full payback on production costs and the expansion of the organization’s production base.
Both the enterprise itself and the state are interested in the growth of profit indicators of the enterprise, due to the increase in the tax base. Thus, income is the main factor in evaluating economic activity.