Profit: Definition. Profit and income: differences

People who are far from the economy do not see the difference between the concepts of "income" and "profit." However, the difference between these two categories is quite significant. They are one of the main indicators of the feasibility of financial and economic activities of enterprises.

To understand what each of these categories means, it is necessary to consider their precise definition. Profit and income are involved in the calculation of the net financial result of the company. How to calculate and apply them, every entrepreneur should know.

General information

Studying the system of constructing a report on the financial result of the activities of enterprises and organizations, it is necessary to note the need to clearly understand each definition. Profit, income, sales revenue, gross profit have a specific calculation methodology.

At first glance, such a heap of synonymous concepts may seem unnecessary. However, if you look closely, there is some sense in this. Legislation, statistics, taxation and regulatory bodies use these terms without fail.

Therefore, even the owner of a small business simply needs to understand the methodology for calculating its net profit. After all, it is for its receipt that companies and organizations are created. Even for those who are far from the economy, it will be useful for the overall development to understand the difference between the listed categories.

Cash approach

The monetary amount that an enterprise receives after the sale of its goods, services, is revenue. This is a fairly general definition. Profit at the time of receipt of revenue is not yet known to the owner of the company.

By selling its goods, the company receives cash infusion of funds into its accounts. This is a cash approach. In the modern world, often the phenomenon of payments on credit or in installments. Therefore, the proceeds from the sale of each item of goods can be calculated only after the consumer has paid in full his purchase.

It should also be taken into account that the profit of the organization can be calculated even before the finished product is disposed of. If the customer has transferred the advance to the company's account, these funds are accounted for already as revenue. This must be understood before computation.

Shipment accounting method

The profit of the organization, which it receives in the reporting period, can be calculated by another method. For this purpose, the calculation base will be the revenue for shipping. The amount can be submitted ready for settlement if the goods were transferred to the buyer or an act of providing services was signed. However, the funds may not yet be transferred to the company's account.

In this approach, the advance received from the customer is not included in the revenue amount. By the way, it occurs more often, since it is more convenient for large companies, where turnover is very high.

Small organizations for the accuracy of calculations can apply the cash method of calculating income.

The concept of income

The profit and loss statement is familiar to every owner of the enterprise or organization. This is a legally established form of accounting. In its detailed consideration, it becomes clear the difference between all categories of calculating the financial result.

Income is an increase in funds on the accounts of the enterprise or the amount of all concluded transactions with customers at the end of the reporting period. This is the receipt of money from the main activity.

Cash flow comes from financial, operational and investment activities. In addition to fees for the provision of services or the sale of products, for example, foreclosures from counterparties, interest on deposits, receipt of funds from the sale of shares, etc.,

But the amount of these revenues can not provide information about the effectiveness and expediency of the enterprise.

The concept of profit

Moving on in the study of the topic, it is necessary to understand what is profit. After all, it is this indicator that seeks to get and increase any enterprise. Based on the available data on various types of profit, it is possible to assess the company's performance.

The profit organization receives in the event that the aggregate income exceeded the total costs. A positive financial result demonstrates the competent management's disposal of the available resources.

Profit growth is possible with regular analytical activities and planning. From the correctness of the adoption of global and local solutions at all levels of management, the prosperity and sustainability of the company depends.

Formula: calculation

In order to understand what each of these categories is, it is necessary to present them in the form of formulas. They will help correctly understand the essence of the financial results obtained by the company. The formula for income is as follows:

• Income = Proceeds from operating, financial and investment activities.

The profit, the formula of which is considered below, is calculated a little more complicated. It looks like this:

• Profit = Income - Expense.

This is the indicator that can provide information about the actual state of affairs in the enterprise. It should be understood as the final indicator of the financial result accumulated by the enterprise.

Profit is also the main factor in financing the development and expansion of the enterprise. In addition to all of the above, it is also a source of state budget revenues. Infusions into it occur due to deduction from the profit tax.

Types of profit

Studying the profit, the formula for calculating which was presented above, it is necessary to distinguish several of its varieties. They are defined in different ways. They are evaluated to obtain data on the state of the company's activities from various points of view.

The first is calculated gross profit. It is defined as the difference between sales revenue and cost. This indicator is often used in the analysis and comparison of the economic efficiency of various enterprises.

Banks are studying gross profit to assess the creditworthiness of the organization. Therefore, it is important for the governing bodies to keep the changes in this indicator under control.

Net profit is obtained as a result of subtracting from the previous indicator of income tax, fines, interest payments for the use of borrowed capital and other expenses. This is the result of the work of the enterprise. The owners can distribute the received funds among themselves in whole or in part to direct them to expansion, development of production. These infusions will be reflected in the balance sheet as undistributed profits.

To conduct an assessment of the company's activities by international investors, such indicators of refined profit as EBIT and EBITDA are used. They allow to evaluate the effectiveness of domestic enterprises in comparison with foreign organizations. The first indicator is profit before tax, and the second - does not take into account depreciation charges, taxes, fees on loans.

Example calculation

To understand the difference between the presented indicators of financial performance, it is necessary to consider them with an example. Net income and net income are necessarily studied in dynamics over several reporting periods. But the efficiency of the company can only tell the profit.

Suppose a new company was created that sells household appliances. In the first month she received an income in cash of 500 thousand rubles. How the organization worked during this period of time can not be said.

If after deducting expenses the company has a loss - the business is unpromising. Sometimes expenses are equal to income. In this case, the enterprise worked without loss.

On the feasibility of commercial activities says a positive financial result. For example, if after payment of all fees the enterprise still has 20 thousand rubles, this amount can be used to expand its activities. This business is profitable.

Having considered the facts listed above, it is possible to understand the difference between the main economic categories. It is necessary to clearly understand their definition. Profit is always less than income. The enterprise seeks it and wants to increase it with each operational period.