Profit is the most desirable thing for any enterprise. But for prosperity it should not only be received, but also reasonably spent. Therefore, the profit of the enterprise, the distribution and use of profit, we will consider in the framework of this article.
general information
What is the main property that the company profits within the company ? Distribution and use of profit should provide financial resources for the needs of reproduction by setting the optimal ratio between the means that accumulation and consumption are directed. In this case, special attention is paid to the state of the competitive environment. It must always be taken into account. Indeed, the state of the competitive environment can have a significant impact in terms of production potential, its expansion and updating. Based on a number of factors, a decision is made on how the formation, distribution and use of profit will occur. Whether funds will go to finance capital investments, increase working capital, support research activities, introduce new technologies or something else is decided during this process.
What is profit?
So called the monetary expression of savings that are created by enterprises regardless of their form of ownership. Thanks to profit characterize the financial result of the company. It is an indicator with the help of which production efficiency, quality and volume of created products, cost level and labor efficiency are most fully reflected. Due to all this, profit is one of the main economic and financial indicators of the plan on which the assessment of the economic activity of the subject is based. It is thanks to the profit that the measures for socio-economic and scientific-technical development of the enterprise are financed and the wage fund of employees is increasing. Moreover, it is not only a source for satisfying the existing on-farm needs of the company, but also has a significant influence in the formation of extra / budgetary resources and charitable funds. The profit of the enterprise is the money that remains after deducting the cost of processes and taxes.
Specificity
In existing market relations, each company is trying to get the maximum possible profit. At the same time, it should not only be able to firmly maintain the marketing of its products on the market, but also ensure dynamic development in a competitive environment. Therefore, before you start to manufacture or provide something, you initially study what kind of profit from sales can be made. An analysis of the potential sales market is carried out and it is determined how successfully the task can be achieved. After all, making a profit is the main goal of entrepreneurship, the end result of this type of activity. An important task that is solved in this case is to obtain the highest revenues at the lowest cost. This is achieved due to the strict mode of saving in the matter of spending money and the constant desire to optimize their spending. At the same time, the main source of cash accumulations is the revenue received from the sale of goods or services (or more precisely - the part of it that remains after deducting the amount that is spent on production and sale).
Important aspect
When the profit from the activity is distributed, then it is divided into consumed and capitalized parts. This moment can be focused on the constituent documents, the interest of the founders or depend on the chosen development strategy of the company. Each legal form of the enterprise has a legislatively established mechanism for the distribution of funds that remained at the disposal of the subject. Its features depend on the internal structure, as well as on the specifics of regulation of the company. It should be noted that the state cannot directly influence how the profit of the enterprise will be spent. Distribution and use of profits can only be stimulated by certain tax benefits. So, most often in this spirit they talk about innovation, charity, environmental measures, capital investments and the like.
Balance sheet profit
It is the object of distribution in any enterprise. This refers to the direction of profit for certain articles for use for specific purposes. The legislation stipulates that part of the profits should go to the budget of the state or local authorities under the guise of taxes or other obligatory payments. Everything else remains directly with the company itself. So, the company itself decides where to send it most of the profit from sales. The procedure for the distribution of profit and its use is prescribed in the constituent documents and certain provisions, which are developed by economic and financial services and approved by the manager (owners) or the governing body of the enterprise. How is this process going? A better understanding of it will help us to consider the current situation.
What is profit sharing based on?
This process reflects the order and direction of use of funds and is determined by the legislation, tasks and goals of the enterprise, as well as the interests of its founders (owners). Own profit is spent based on the following principles:
- The obligations undertaken to the state should be fulfilled.
- It is necessary to ensure the material interest of employees in the process of achieving the best results with minimal expenses;
- One should take care of the accumulation of equity, due to which the process of continuous expansion of the business will be ensured;
- It is necessary to fulfill the obligations undertaken to the founders, creditors, investors and other persons.
Profit sharing example
Now that we have paid attention to the principles on which this process is based, let's look at the situation with a limited liability company. In this case, taxation and distribution of funds is carried out in the general manner that is established for legal entities. So, part of the funds can be directed to the reserve fund, which, according to the law on limited liability companies, must be formed for the timely fulfillment of the obligations undertaken. In the event that one of the founders wants to collect his contribution, everything will be paid out of these funds. In addition, there are accumulation and consumption funds. The first includes funds that in the future will go to the development of the company and various investment projects. That is, profit management involves the allocation of individual amounts to these areas, which accumulate until the moment when there is the necessary amount of money. The consumption fund is engaged in social development, material incentives and pays the founders certain amounts proportional to earnings and their contributions.
Economic essence
So, we have already considered the profits of the enterprise, the distribution and use of profits in general terms. Now let's pay attention to the theoretical aspects of this topic. So, if we talk about the level of the enterprise, then in terms of commodity-money relations, here net income receives a form of profit. By setting prices for their products, companies begin to sell it to consumers. At the same time, they receive cash proceeds. But this does not necessarily imply profit. To determine the financial results, the revenue should be compared with the expenses for the production of goods or the provision of services and the amounts for their implementation. Together they take the form of cost. And what to do with these indicators? When the revenue is higher than the cost, then we can say that the financial result confirms the receipt of profit. It should be noted once again that it is always a goal for an entrepreneur. But its receipt is not guaranteed. So, if revenue and cost are equal, then only expenses were reimbursed. In such cases, production, scientific, technical and social development stops. If expenses exceed revenue, then the company incurs losses. This suggests that he will have a negative financial result, a difficult situation, which does not exclude even bankruptcy. Moreover, there are various profit factors that can tell on the final state of affairs. First of all, you should focus on the fact that you need to realize cost-effective products. Also a prerequisite is that the price of goods and services should be higher than cost.
What functions does profit make?
As a category of market relations, it:
- It characterizes the economic effect that was obtained as a result of the enterprise.
- It has a stimulating effect. In other words, it is both the main element of financial resources in the enterprise, and an indicator of performance. This aspect is a very good illustration of the principle of self-financing, the size of the implementation of which depends precisely on the amounts received.
- Profit serves as a source of budgeting at various levels.
What else can I say?
Separately, it is worth noting that distinguish between economic and accounting profit. The first means the difference between revenue and production costs. Accounting earnings are slightly different. It is understood as the difference between total revenue and only external costs. It should also be noted that in accounting practice there are slightly different approaches to the analysis of economic activity, in which different types of profit are used: retained, taxable, net and so on.
Distribution and use
The amount of profit may be different, but the patterns are repeated for different enterprises. The distribution and use of sums of money is an important business process that provides for the needs of the people who created the enterprise and generate state revenues. The mechanism for channeling funds should be built in such a way that it in every way contributes to maximizing the efficiency of production and sales. The distribution object is retained earnings. It goes to the budget and goes to specific articles of use.
What principles of profit sharing exist?
So, our article is already approaching its logical conclusion. Accounting for profit distribution is simply not possible without looking at certain principles and without violating the law. So:
- The profit received by the enterprise as a result of its production, business and / or financial activities is distributed between the company and the state.
- Revenues go to the budget in the form of fees and taxes. Bets cannot be arbitrarily changed. Their list, accrual and transfer procedures are established by law.
- The amount of profit that the company remains after paying taxes should not reduce its interest in improving operations.
From what remains after the payment of mandatory payments, fines and penalties may be exacted in case of violation of the law. And it should be remembered that the profit that remains at the disposal of the enterprise itself is used as it wishes. Neither the state nor individual bodies have the right to intervene in this process and at least somehow influence it. The only acceptable option is to create conditions for the entrepreneur through the provision of tax benefits. Then, profits from sales will be directed to what is beneficial to the state.