Accounting profit refers to the amount of profit calculated using generally accepted accounting principles (GAAP) rather than tax rules. It represents the revenue for an accounting period less the expenses incurred, utilizing the concept of accrual accounting. There are several theoretical and practical challenges in determining this profit, leading to a certain variability in its measure.
In accounting, to accrue means to record an expense or revenue in the company’s financial statements even if no cash transactions have taken place. Accrued items include revenues earned or expenses incurred but not yet received or paid.
Accrued charges represent obligations for goods or services that have been received or consumed but not yet paid for by the end of the accounting period.
An accrued expense is a cost that has been incurred but not yet paid. These are obligations that a company must pay out in the future for services or goods that have already been received.
Accrued liabilities are expenses that a company has recognized in the books before it has paid them. This concept is integral to the accrual method of accounting which emphasizes recognizing economic events regardless of cash transactions.
Break-Even Analysis is a financial analysis that identifies the point at which expenses equal gross revenue, resulting in neither profit nor loss. It is a crucial tool for businesses to determine the minimum sales volume required to avoid losses.
Capital costs refer to the expenses incurred to acquire, upgrade, and maintain physical assets such as properties, industrial buildings, or equipment. Often, these costs are major, one-time expenses that have long-term benefits.
Cash disbursement refers to the amount of money paid out by a business or individual during a specific period for expenses, purchases, or other financial obligations.
A credit entry is made on the right-hand side of an account, representing an increase in a liability, revenue, or equity item, or a decrease in an asset or expense.
An essential accounting term used in double-entry bookkeeping to record increases in assets or expenses and decreases in liabilities, revenues, or equity.
A deferred asset, also known as a deferred debit, represents an expenditure that has been made and recognized but not yet expensed according to the matching principle of accounting.
Depreciation refers to the reduction in the value of an asset over time, often due to wear and tear. This accounting process allows businesses to allocate the cost of a tangible asset over its useful life.
Development costs refer to expenses associated with the creation and launch of new products or services. This includes the research, testing, design, and other activities necessary to bring an idea to market.
A discount granted by a company to a client, for example for a bulk purchase or a prompt payment. It is shown as an expense in the profit and loss account.
Understanding the elements of cost is fundamental for businesses to ensure efficient production and optimal pricing strategies. The three primary cost elements in a production process include material, labor, and expenses.
Expenditure refers to the costs or expenses incurred by an organization. These may be capital expenditure or revenue expenditure. It encompasses both the outlay of money and the acknowledgment of liabilities.
A fixed charge is the portion of an expense that remains constant, regardless of the amount of a commodity or service used or consumed.
The income statement, also known as the profit and loss statement, provides a detailed summary of a company's revenues, expenses, and profits over a specific period of time. It offers crucial insights into the financial performance of a business.
In accounting, a loss is the amount by which the expenses of a transaction or operation exceed the income produced.
A managed service company (MSC) is a type of business entity that primarily provides the services of an individual while compensating that individual through dividends and expense payments rather than a traditional salary. Changes in tax law from 2007 have brought PAYE regulations to apply to these companies.
The matching concept in accounting requires that expenses be matched with the revenues they generate within the same accounting period, ensuring accurate financial reporting.
Net earnings, also known as net income, represent the total profit of a company after all expenses and taxes have been deducted from total revenue. It is a crucial indicator of profitability.
Net Profit Margin is a financial metric that indicates the percentage of profit a company makes for every dollar of revenue after accounting for all expenses, including taxes.
Net yield is the return on an investment after all expenses, taxes, and costs have been subtracted. It provides a more accurate measure of an investment's profitability than gross yield.
A nominal account is a type of ledger account that records expenses, losses, incomes, or gains, rather than transactions involving tangible or intangible assets.
The Profit and Loss (P & L) account is a financial statement summarizing the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year.
A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period of time, usually a fiscal quarter or year.
A Profit and Loss Statement (P&L) summarizes the revenues, costs, and expenses incurred by a company during an accounting period, offering a comprehensive view of its financial performance. Also known as an Income Statement, operating statement, statement of profit and loss, or income and expense statement.
A payment made to an employee or another party to cover expenses or losses incurred. Common in corporate settings for expenses like travel and entertainment.
Selling overhead encompasses the expenses incurred by an organization in carrying out its selling activities, which include salaries of sales personnel, advertising costs, sales commissions, and other related expenses.
A Statement of Income, also known as a Profit and Loss Statement, is a financial document that summarizes the revenues, costs, and expenses incurred during a specific period, often a fiscal quarter or year.
Variable cost refers to expenses that change in proportion to the production output or sales volume. They fluctuate based on the operational activity, such as material costs, labor costs, and utility expenses.
