Firms work for the sake of profit, in it is the meaning and main purpose of entrepreneurial activity. To determine the accounting and economic profit, you need to use the data of the company's balance sheet.
Instructions
Step 1
Profit is the amount of excess income over expenses. In the financial documentation of an enterprise, two varieties of this concept are distinguished: accounting and economic. To determine the accounting profit, you need to calculate the total amount of sales of products and subtract from it the total amount of costs associated with the production and sale of goods.
Step 2
The amount of sales of products is the income received from its sale, the main cash receipts of the enterprise, which are a reflection of the results of its production activities. This is a target value, which is laid down at the stage of developing a production strategy, and its achievement has a great impact on the financial stability of the company.
Step 3
Production and sales costs are the full cost of the product. They consist of material costs for the purchase of materials and equipment, payment for working hours, other social contributions, as well as overhead costs associated with the transportation, storage and advertising of finished products.
Step 4
To determine the economic profit of the enterprise, it is necessary to deduct additional expenses from the amount of accounting profit that were not taken into account in it. This type of cost includes the entrepreneur's own costs, bonuses to employees, and deductions to officials. It also takes into account the so-called opportunity benefit, which is the profit that the company could have earned under other circumstances. For example, when choosing a different production model or a different structure of equity or third-party capital.
Step 5
Any kind of income, except for statutory exemptions, is taxable. After the profit is reduced by the amount of tax payments, it becomes net, i.e. that part of the main proceeds that remains at the disposal of the enterprise itself and can be used to expand production.
Step 6
However, profit is not always positive. In this case, a number of measures should be taken, for example, recruit a more qualified team of workers or improve the skills of existing ones. In addition, you can buy more modern equipment, change suppliers, reduce the cost of renting offices, warehouses, advertising, etc. If this is not done, the company will soon go bankrupt or be taken over by another, more successful organization.
