Compute Your True Profit
Business profit is a reward of doing good in business.
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Every businessman
is constantly looking forward for a profit. They are carefully avoiding their
business costs and expenses to exceed their revenues. In finance, profit is
what we get after deducting our sales or revenue with our costs and expenses.
Sometimes business owners even go beyond ethical grounds just to avoid losses
and stay in profit. They do this on many ways. An example of this is by
maximizing their revenues by setting unreasonably high product and service
prices. Some businessmen manufacture or provide low quality products and
services just to lessen their costs. And when it comes to dropping expenses,
they commit tax evasions, pay unjustly salaries and benefits to employees,
escape environmental preservation expenses, and other unethical and unfair
business practices.
Computing profit
is one thing that every business owner wants to learn. To know this is to learn
some basic accounting. So how do we compute profit? Basic accounting states
that profit is equal to revenues less your cost and expenses. For a
manufacturing and merchandising firm, net profit is equal to sales less cost of
goods sold and expenses. For a service firm, it is equal to sales less cost of
services and expenses. Common business expenses include administrative salaries
and benefits, provisions, marketing expenses, taxes and licenses, insurance,
power and communication, supplies, repairs and maintenance and others. Taxes
and licenses are considered government expenses. In a set of financial
statements, you will find the computation of your business net profit or net
loss in the statement of income or loss. Statement of income is also known as
statement of operation.
Business profit
is a reward of doing good in business. It is a prize obtained by a good
businessman. But why do bad businessmen still getting this reward of profit?
Why do their independently and professionally audited and accounted income
statements still show profits? Are we having a wrong maxim or a wrong
computation? Good businessmen indeed get business reward. Our accounting is not
really wrong but only lacking some important factors that need to be accounted.
Everything that relates business should be accounted to come out with the true
profit.
Let’s go back to
the basic equation, net profit is equal to revenues less costs and expenses.
Revenues are your total earned sales of products or services. It should also consist
of other revenues like interests, income from rents, investments and others.
Moreover, it should also include recognizable goodwill like environment
protection, charity, full taxes remittance, providing qualitative products and
services, satisfaction of clients and customers, high and favorable
compensation to laborers and employees, and others. These gains though
difficult to monetize are not impossible to estimate in order to be accounted
in our statement of net profit or loss.
Costs and
expenses, as discussed earlier include cost of products and services and
expenses of being in business. Expenses should also include recognizable bad
deeds like damaging the environment, tax evasion, providing low quality
products and services, customers’ negative claims, absence of honesty and
integrity, unfair payment of remunerations to employees, and others. All these
factors are business related and therefore should be accounted and recognized
in computing true profit. Hence, our accounting standard regulators and bodies
should start setting standards that will truly and deeply account business profit.
So that , readers of profit statements and all other financial statements will finally
be able to know if a certain business or company is doing good or not.
About the author
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The author is a Certified Public Accountant
providing public accounting and business services for more than three years.
Tags: administrative salaries, basic accounting, business costs, business expenses, business owner, business owners, business profit, businessman, businessmen, ethical grounds, low quality, mso, net profit, orphan, provisions, quality products, style definitions, style name, times new roman, unfair business practices