Business, Legal & Accounting Glossary
Calculated as revenue minus expenses.
Profit is basically a financial benefit. Profits are made by companies when income generated by them during a certain period of time exceeds expenses made during the same period. Various taxes paid by a particular company are also taken into account while calculating profits. There are several ways of spending the profit earned by a business organization.
There are two main ways in which profits may be utilized. Profits may be collected by owners of a business or maybe spent on business activities. Profit is calculated as the difference between total revenue and total expenses. Profit is the primary business motive of any and every business establishment, irrespective of its size or area of operation. However, it has been observed that some companies take a long time to achieve profits in their business endeavours.
Economic profit is a substitute for economic value added. It is different from accounting profit, which is a generally accepted form of profit. Economic profits are calculated by subtracting opportunity costs from revenues earned by a company.
There are two broad definitions of expenses. One accepted definition is that these are costs that are incurred by a company when it tries to generate revenue. Expense is also regarded as tax-deductible costs. Certain examples of expenses are payments made to suppliers, factory leases, wages paid to employees, and depreciation costs.
An Income statement is documentation of the financial performance of a company for a particular accounting period like a month for example. It is a summary of revenues generated and expenses made in that particular accounting period. Income statements are also called a statement of revenue and expense and profit and loss statement.
Net income may be defined as total earnings or profit made by a particular company excluding all types of operational expenses. Net income may be computed by taking into account revenues earned by a company and expenses made by that company at that accounting period like – business costs, interests paid, depreciation costs, and taxes paid.
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This glossary post was last updated: 27th March, 2020