Profit and revenue are indicators that characterize the financial result of an enterprise. Commercial enterprises independently set the price for their products and determine their output. After the sale of the manufactured products, the enterprise receives proceeds. To determine how well a business is performing, it’s necessary to compare revenue with the total costs of the business. If the revenue exceeds the total costs, then the company makes a profit.
Methods for calculating revenue and profit
The main source of revenue at the enterprise is the main activity of the enterprise.
To calculate revenue in accounting, two methods are used:
- cash method;
- method of shipment.
When using the cash method, revenue is reflected in the accounting from the date of payment for goods and services. This method is widely used by small businesses that work for cash.
When using the shipment method, revenue is recognized from the moment of shipment, regardless of whether payment has been received for the product or not.
Profit is calculated as the difference between all the revenue that the company was able to receive during the reporting period and the sum of the costs of production and sales of products. If the revenue exceeds the cost, then the firm gets a positive result, that is, profit. If, on the contrary, costs exceed revenues, then the firm receives a negative result, that is, a loss.
The mechanism for generating profit is reflected in the “statement of financial results”.
In Russian accounting practice, the following types of profit indicators are calculated:
- gross profit;
- revenue from sales;
- profit before tax:
- net profit.
Gross profit is the difference between revenue and cost. Selling and administrative costs are not included in the cost price.
To calculate the profit from sales, it is necessary to subtract the entire amount of administrative and selling expenses from the gross profit.
To calculate profit before tax, you must first determine the amount of other income and expenses. To calculate this indicator, you need to add other income to the profit from sales and subtract other expenses from the amount received.
Net income is the final measure. It reflects the profit that remains at the disposal of the enterprise after taxes.
Revenue planning
Revenue key figure planning is the basis for operational planning. When planning revenue, settlement transactions can be carried out according to the method of direct or consolidated account.
It is possible to use the direct counting method only with a small range of products. In this case, the following formula is used for planning: Revenue = Product price * Planned volume of products sold.
The large-scale counting method is used with a large range of products. When calculating, the following formula is used: Revenue = About n.p. + T - About kp, where He is the balance of finished products at the beginning of the planning period, T is the production output in the planned period, Ok is the balance of finished products at the end of the planning period.
