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Definition of accounting profit

Definition of profit

Profit is a financial benefit that is achieved when the value of the revenue generated through a particular business activity during a certain period exceeds the expenses and costs, and it can also be defined as the return on invested capital from the point of view of the entrepreneurs, there are several theories that have tried to show the profit that the entrepreneurs get either Companies or individuals, and all of these theories consider accounting profit to be the main driver of any business activity regardless of the premise that these theories adopt, and achieving continuous profit is the goal of every company, as a result of which business owners depend on profitability in all its many forms.

Definition of accounting profit

Definition of accounting profit
Definition of accounting profit

Accounting profit is the difference between total revenue and accounting costs, that is, the profit resulting from the application of international accounting standards IFRS with the aim of preparing financial Statements and the income as a result of the income and loss account. Profit has several types, including:

gross profit

In short, it is net sales revenue minus cost of goods sold. Gross profit can be called gross margin and can be expressed as a percentage of net sales.

Net profit

It is the gross profit minus taxes and bank interest. The net profit can be expressed as a percentage called the net profit margin on the following picture: net revenue divided by net expenses. This measurement helps to reveal the amount of profit that can be obtained from the company's total sales.

operating profit

It is the realized revenue, from which the expenses directly related to the operating process, such as production costs, the cost of goods sold, and administrative and marketing costs, are subtracted.

profit and loss list

After identifying the accounting profit, it is necessary to know what the profit and loss statement means, which is a financial statement that shows the company’s revenues and expenses for a specific period of time, so that it shows the company’s profitability for a certain period. The profit and loss statement, which is also called the income statement, is one of the main financial statements that start By entering the revenues and subtracting from them the costs and expenses of the operating activity, including the costs of the goods that were sold, taxes, interest and commissions, and the output is called net income. the following:
  • Summarize all revenues, costs and expenses incurred during a given financial period.
  • The statement of profit and loss provides an in-depth look at the performance and financial solvency of the company.
  • It helps to make a comparison between different financial periods so that the statement of the change in revenues, operating costs and expenditures also helps in the ongoing research and development of the facility.
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