What is accounting profit: definition, formula, calculation

Today, the concept of accounting profit is a relevant indicator for both large enterprises and private entrepreneurs. The final result in any business depends on how correctly this indicator is calculated. The stability of the enterprise directly depends on the financial result.

What is accounting profit

- this is the total income of the organization for the past period, implying a positive financial result, which is calculated for the past period, minus all expenses incurred for the production and sale of products. Financial statements, as a rule, are formed quarterly and for the year as a whole. In this case, all business transactions performed at the enterprise are taken into account.

The concept of accounting profit contains two main principles:

1. Capital savings - the principle, which is based on an increase in the welfare of the enterprise as a whole. In other words, the accounting department keeps records of funds that are an emergency reserve for the enterprise and are not wasted without urgent need.
2. Capital building - a principle that involves an increase in the capital of the enterprise. Here is a comparison of income and expenditure of funds. Based on these indicators, the accountant makes a conclusion about the advisability of adjusting the activities of the enterprise.

To improve the results of the development of an enterprise, in practice, as a rule, both principles are used.

Let's take a look at what accounting profit is all about. Any enterprise receives for a certain period of time. If it does not exist, the company may go bankrupt. The manager must know what income and expenses are formed in his organization in order to compare them and identify the financial result. There are two types of profit: accounting and economic, which have a significant difference between them. To obtain a general picture at the end of the reporting period, it is necessary to calculate these indicators as a whole.

What is the difference between accounting and economic profit?

Accounting profit is easy to calculate. They take all the income of the enterprise for the reporting period and subtract the costs that go to the purchase of raw materials, production and marketing of goods or services. But it has its drawbacks. With this calculation, it is not always possible to accurately compare the results and profit indicators. Inflation losses are not taken into account. Accounting profit cannot accurately predict how capital changes in an enterprise will occur over time.

Calculation of accounting profit is made on certain forms of the approved sample. Subsequently, these data are submitted to the tax authorities for verification.

The calculation of economic profit gives a more accurate financial result. It is also calculated by the difference between income and expenses, but other financial transactions are also taken into account. This is the profitability of the enterprise, which reflects the degree of efficiency of all resources, the cost of investments, income from investment activities. On the basis of economic indicators, it is possible to most accurately assess the efficiency of the enterprise as a whole and determine how stable it is.

An example of calculating accounting and economic profit (video)

Let's watch a short video where, using the example of a restaurant business, accounting and economic profits are calculated.

Formula for calculating accounting profit

The amount of accounting profit is calculated as the difference between the proceeds from the sale of products, goods or services and the external costs of the enterprise. Let us introduce the notation:

BP \u003d B - VI, where

BP - accounting profit;

B - sales proceeds;

VI - external costs.

External (explicit) costs is a payment for resources that are not the property of the enterprise. This includes the cost of wages of employees, the purchase of raw materials and materials, payment for rented premises, depreciation of fixed assets and utilities.

economic profit , differs from accounting. It is calculated as the difference between the proceeds from the sale of all products and economic costs, which consist of explicit and implicit (external and internal) costs.

EP \u003d V - EI, where

EP - economic profit;

B - sales proceeds;

EI - economic costs.

Internal (implicit) costs - These are the costs associated with the use of all resources owned by the enterprise. This indicator is related to lost profits. For the head of the enterprise, these are the costs incurred for the remuneration of personnel serving production. In the event that the employer could do all the work himself, there would be no need to make such expenses.

Owners of capital invest in business development, thereby receiving certain losses. If, for example, free cash is invested at interest, then they will begin to generate income. Financial losses are calculated here as a lost percentage of the investment. For entrepreneurs who own real estate, the cost is rent.

Factors affecting profit

Thus, we can identify the main factors that affect the increase in the profitability of the enterprise. They are divided into two types:

1. Internal factors , which have an impact on the amount of profit by increasing the volume of products, its implementation, improvement, price increase and cost reduction.
2. External factors, which do not depend on the work of the enterprise and practically do not affect the amount of profit.

• the level of business activity;
• labor productivity at the enterprise;
• quality and competitiveness of products or services;
• professional qualities of managers and specialists;
• the level of enterprise efficiency;
• planning and forecasting financial results.

• production factors showing the availability and use of labor and financial resources in production;
• non-production factors associated with the function of marketing and supply, social conditions of labor activity, environmental protection measures.

Production factors are divided into two subtypes:

1. extensive , which affect the extraction of profit in quantitative terms: financial resources, number of employees, equipment operation time, working time fund;
2. intense , affecting the profit of the enterprise in qualitative terms:

– modernization of equipment and increase in its productivity;

– programs to increase capital turnover;

– increase in labor productivity by raising the level of education of management and specialists;

– improvement of the organization of labor in production;

- lowering the labor intensity of products;

– effective application and use of financial resources.

External factors that affect the increase in profits:

• economic situation in the market;
• prices for purchased raw materials, materials for production;
• fuel and electricity prices;
• deductions for depreciation;
• state pricing policy, taxes, penalties and benefits provided under labor law;
• Natural resources.

In order to find out how these factors affect, you need to understand what the cost of production is. The cost of products, works or services is the valuation of all the costs that went into its production. This includes labor resources, raw materials and materials, fixed assets and natural resources.

Note! When carrying out activities at an enterprise, external and internal factors are closely interconnected and have a direct impact on the value of the cost of production, and hence profits, revealing how rationally and economically material resources are used at the enterprise.

Planning

One of the main components of the efficiency of the enterprise and obtaining high profits is financial planning, which is carried out for several years ahead. The planning period can be from 3 to 5 years if there is economic stability. At the same time, they first draw up a plan for the quarter - short term planning , then for a year - ongoing planning . Based on these indicators, planning for the future is formed.

Note! First, a comparative analysis of profit before tax and profit from the sale of products or services is made, the volume of sales is calculated. After that, a program is developed on the basis of previously concluded agreements. The production program serves as the basis for calculating the required amount of raw materials and materials.

In addition, labor costs are accounted for: tariff rates, payment of wages, transfer of the unified social tax.

As a result of all the calculations made, it is predicted cost price products or services taking into account the balances of finished and unsold products in the warehouses of the enterprise.

Additional Information. The defining moment is the preparation of estimates for administrative and commercial costs associated with the maintenance and management of production, the promotion of goods and services on the market. Intermediary payments may be included in the total amount.

Based on the above calculations, the planned profit from the sale of products or services of the enterprise is formed.

Nowadays, when the unemployment rate is rising, more and more people are starting to work for themselves. Not every entrepreneur understands what accounting profit is and how to calculate it correctly. As a result, there is a risk of losing your business. For the effectiveness of the development of their business, the enterprise must have a professional accountant.