What Is the Difference Between Earnings and Profit?

Profit is the operating result of the entrepreneur, a comprehensive reflection of the company's operating effect, and a concrete manifestation of its final result. ^[1]

[lì rùn]

Profit is the operating result of the entrepreneur, a comprehensive reflection of the company's operating effect, and a concrete manifestation of its final result. ^[1]

Introduction

Quality characteristics of profit:

Mystery

The mystery of business profit, profit is the life of capital, the driving force to speed up the production of goods, improve production efficiency, and promote social development.

Conditions for the recognition of profits: Profit reflects the concept of net income after deducting expenses and gains after deducting losses. Therefore, the recognition of profits mainly depends on the recognition of income and expenses, as well as the recognition of gains and losses, and the determination of its amount also mainly depends on income, expenses, gains,

Profit is quite special

Various profit calculation methods

gross profit

The gross profit is the difference between the tax-free income of the goods and its tax-exclusive costs. Because value-added tax is separated from price and tax, it is particularly emphasized that it does not include tax. The existing invoicing system is called gross profit after tax.

1. The basic formula for calculating gross profit is:

Gross margin = (price without tax-purchase price without tax) ÷ price without tax × 100%

2. Sales price without tax = sales price with tax ÷ (1 + tax rate)

3. Purchase price without tax = purchase price with tax ÷ (1 + tax rate)

4. Purchase non-agricultural products from general taxpayers, obtain special VAT invoices at the time of purchase, obtain 17% of input tax, and pay sales tax at 17% of sales.

5. When purchasing non-agricultural products from a small-scale taxpayer, they issue a special value-added tax invoice from the tax bureau, obtain 4% of the input tax, and sell the output tax at 17%.

6. Purchase of non-agricultural products from small-scale taxpayers without obtaining special VAT invoices, and pay the output tax at 17% when selling.

7. In general, value-added tax is a kind of extra-value tax. It does not affect the gross profit margin itself. What affects the gross profit margin is the purchase price and selling price without tax. To calculate the gross profit margin correctly, as long as it is based on the properties of its products, it can be converted into the purchase price and sales price without tax according to the formula.

net income

Net profit refers to the profit remaining after gross expenses minus all expenses and taxes.

operating profit

Operating profit is the main source of corporate profits. It refers to the profits generated by enterprises in daily activities such as selling goods and providing services. Its content is the balance of main business profits and other business profits after deducting period expenses. The main business profit is equal to the main business income minus the main business cost and the turnover tax borne by the main business, which is usually also called gross profit. Profit from other businesses is the difference between other business income minus other business expenses.

Operating profit = profit from main business + profit from other business-operating expenses-management expenses-financial expenses

Profit for the year

This year's profit accounting entry in four steps:

First, carry forward income:

Borrow: main business income

Borrow: Other business income

Borrow: Non-operating gains

Loan: Profit for the year

2. Carry-over costs, expenses and taxes:

Borrow: profit for the year

Loan: Cost of Main Business

Loans: taxes and surcharges on principal activities

Loans: Other business expenses

Credit: Operating Expenses

Loan: administrative expenses

Loan: financial expenses

Loans: Non-operating losses

Loan: Income tax

Third, carry forward investment income:

Net income:

Borrow: Investment income

Loan: Profit for the year

Net loss:

Borrow: profit for the year

Loan: Investment income (limited space, please read the reference)

undistributed profit

Undistributed profits have two levels of meaning: one is profit that is left to be processed in subsequent years; the other is profit that is not specified for a specific purpose. Compared with other parts of the owner's equity, the enterprise has greater autonomy in the use of undistributed profits.

The balance of the "undistributed profits" detail account in the statements of listed companies reflects the accumulated undistributed profits or accumulated unrecovered losses of listed companies. For various reasons, such as balancing the level of investment returns for each fiscal year, making atonements with ample compensation, leaving room for others. The net profit realized by a listed company will not be fully completed, and the remaining part will be allocated for subsequent years. In this way, it is rolled over from year to year, and the balance is in the "undistributed profit" line item, which reflects the accumulated undistributed profit over the years. In the same way, the unrecovered losses in the previous year are left to be remedied in the following years, and the losses in subsequent years continue to roll over. The balance is in the "undistributed profit" line item, which reflects the accumulated losses over the years and is recorded as a negative number.

Basic calculation

Operating profit = operating income-operating costs-operating taxes and surcharges-selling expenses-management expenses-financial expenses-asset impairment losses + fair value gains and losses (-loss from changes in fair value) + investment income (-investment losses). ^[2]

Operating income: refers to the total amount of income recognized by the business operations of the enterprise, including main business income and other business income.

Operating cost: It refers to the total actual cost incurred by the company's business operations, including main business costs and other business costs.

Asset impairment loss: The loss caused by the company's provision for asset impairment.

Gains (or losses) from changes in fair value: Gains (or losses) due to changes in fair value, such as corporate transactional financial assets, that should be recorded in profit or loss for the current period.

Investment gains (or losses): The gains (or losses) incurred by an enterprise's external investment in various ways.

Total profit = operating profit + non-operating income-non-operating expenses.

Non-operating income: all kinds of gains that the company has not directly related to its daily business activities.

Non-operating expenses: various losses incurred by an enterprise that are not directly related to its daily business activities.

Net profit = total profit-income tax expenses.

Income tax expenses: The income tax and expenses recognized by the enterprise shall be calculated and paid to the local government tax authorities in a certain proportion from the total profits of the current period.