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Economic profit vs accounting profit | Microeconomics | Khan Academy
Economic profit vs accounting profit | Microeconomics | Khan Academy
Published: 2012/01/19
Channel: Khan Academy
Economic Profit and Costs- ACDC Econ - Micro 3.6
Economic Profit and Costs- ACDC Econ - Micro 3.6
Published: 2014/06/13
Channel: ACDCLeadership
Accounting profit vs Economic profit
Accounting profit vs Economic profit
Published: 2017/01/08
Channel: Accountingplus
Microeconomics Practice Problem - Accounting Profit versus Economic Profit
Microeconomics Practice Problem - Accounting Profit versus Economic Profit
Published: 2013/11/06
Channel: jodiecongirl
Government & Non-Profit Accounting:  Accounting for Not-For-Profit Organizations
Government & Non-Profit Accounting: Accounting for Not-For-Profit Organizations
Published: 2013/05/23
Channel: Rutgers Accounting Web
Governmental & Not-For Profit Accounting: Professor Bora- Lecture # 1 03-03-14
Governmental & Not-For Profit Accounting: Professor Bora- Lecture # 1 03-03-14
Published: 2014/03/07
Channel: Rutgers Accounting Web
Accounting For Ecommerce Sellers With CPA Anna Hill ( Ebay + Amazon Sellers )
Accounting For Ecommerce Sellers With CPA Anna Hill ( Ebay + Amazon Sellers )
Published: 2016/10/13
Channel: Raiken Profit
Easy Office Webinar: Nonprofit Accounting 101
Easy Office Webinar: Nonprofit Accounting 101
Published: 2011/10/10
Channel: Jeff Russell
Accounting for investment not for profit CPA exam FAR
Accounting for investment not for profit CPA exam FAR
Published: 2017/08/05
Channel: Farhat's Accounting Lectures
Accounting versus Economic Profit
Accounting versus Economic Profit
Published: 2012/09/10
Channel: Free Econ Help
Nonprofit Accounting Basics | Vlogcast #5 | Araize Academy
Nonprofit Accounting Basics | Vlogcast #5 | Araize Academy
Published: 2016/06/09
Channel: Araize FastFund Online Nonprofit Software
Partnership Accounting For Income Allocation (Distribution) With Profit & Bonus Calculated
Partnership Accounting For Income Allocation (Distribution) With Profit & Bonus Calculated
Published: 2012/09/16
Channel: Allen Mursau
Government & Non-Profit Accounting: Accounting for General Capital Assets and Capital Projects
Government & Non-Profit Accounting: Accounting for General Capital Assets and Capital Projects
Published: 2013/05/23
Channel: Rutgers Accounting Web
Non-Profit Accounting 3 6 16 - FAR Review For The CPA Exam
Non-Profit Accounting 3 6 16 - FAR Review For The CPA Exam
Published: 2016/02/28
Channel: Farrell CPA
Accounting of NPO -  Non Profit Organization accounting  Lecture1 by Santosh kumar( CA/CMA)
Accounting of NPO - Non Profit Organization accounting Lecture1 by Santosh kumar( CA/CMA)
Published: 2017/02/19
Channel: santosh kumar
Gov
Gov't & Not For Profit Accounting - Review (Chapter 1, 2, 3, 4, 5)
Published: 2015/06/11
Channel: Rutgers Accounting Web
Contribution and pledges for not for profit accounting CPA exam FAR
Contribution and pledges for not for profit accounting CPA exam FAR
Published: 2017/08/03
Channel: Farhat's Accounting Lectures
Not For Profit Accounting (Hospitals, Health Care Organizations, Different Funds, Income, Etc.)
Not For Profit Accounting (Hospitals, Health Care Organizations, Different Funds, Income, Etc.)
Published: 2013/11/14
Channel: Allen Mursau
CPA Exam FAR Question | NINJA MCQ | Not for Profit Accounting
CPA Exam FAR Question | NINJA MCQ | Not for Profit Accounting
Published: 2015/08/08
Channel: CPA Exam NINJAs
Accounting for Not for Profit Organisation - XIth, IPCC - Part - 1 By CA Pardeep Jha
Accounting for Not for Profit Organisation - XIth, IPCC - Part - 1 By CA Pardeep Jha
Published: 2016/02/15
Channel: Winning Quest
Not For Profit Accounting (Colleges & Universities, Basic Accounting For Different Fund Groups)
Not For Profit Accounting (Colleges & Universities, Basic Accounting For Different Fund Groups)
Published: 2013/11/12
Channel: Allen Mursau
Business Calculations & Accounting : How to Calculate Gross Profit
Business Calculations & Accounting : How to Calculate Gross Profit
Published: 2009/07/06
Channel: eHow
Accounting and Finance - Profit and Revenue
Accounting and Finance - Profit and Revenue
Published: 2008/06/15
Channel: James Slocombe
Not For Profit Accounting (Understanding Reclassification Of Temporary Restricted Assets, Etc.)
Not For Profit Accounting (Understanding Reclassification Of Temporary Restricted Assets, Etc.)
Published: 2013/11/08
Channel: Allen Mursau
CPA exam questions FAR not for profit (nongovernmental) entities intermediate accounting 3
CPA exam questions FAR not for profit (nongovernmental) entities intermediate accounting 3
Published: 2016/10/30
Channel: Farhat's Accounting Lectures
Governmental & Not-For Profit Accounting: Professor Bora- Lecture # 2  03-10-14
Governmental & Not-For Profit Accounting: Professor Bora- Lecture # 2 03-10-14
Published: 2014/04/02
Channel: Rutgers Accounting Web
Accounting and Economic Profit
Accounting and Economic Profit
Published: 2014/12/27
Channel: Brad Bilsky
Nonprofit Accounting Basics
Nonprofit Accounting Basics
Published: 2014/12/18
Channel: Aplos
Introduction - Government And Not-For-Profit Accounting
Introduction - Government And Not-For-Profit Accounting
Published: 2015/01/27
Channel: Faithful Runner
Government & Non-Profit Accounting: Accounting for General Long-Term Liabilities and Debt Services
Government & Non-Profit Accounting: Accounting for General Long-Term Liabilities and Debt Services
Published: 2013/05/23
Channel: Rutgers Accounting Web
Accounting and Finance - Cost and Profit Centres
Accounting and Finance - Cost and Profit Centres
Published: 2008/06/15
Channel: James Slocombe
Accounting, Normal, and Economic Profit
Accounting, Normal, and Economic Profit
Published: 2015/05/28
Channel: Cameron Fahey
Cost Volume Profit Analysis and Break Even Points (Managerial Accounting Tutorial #11)
Cost Volume Profit Analysis and Break Even Points (Managerial Accounting Tutorial #11)
Published: 2014/04/29
Channel: Notepirate
ACCTBA2 - Accounting for Division of Profit and Loss
ACCTBA2 - Accounting for Division of Profit and Loss
Published: 2014/11/23
Channel: COB Channel
Cost Volume Profit Analysis - Part 1 - The Basics - Management Accounting
Cost Volume Profit Analysis - Part 1 - The Basics - Management Accounting
Published: 2013/02/22
Channel: Tony Bell
Government & Non-Profit Accounting: [Part I] Accounting for Governmental Operating Activities
Government & Non-Profit Accounting: [Part I] Accounting for Governmental Operating Activities
Published: 2013/05/23
Channel: Rutgers Accounting Web
Gov
Gov't & Not For Profit Accounting - General Capital Assets
Published: 2015/06/11
Channel: Rutgers Accounting Web
Episode 21: Accounting Costs vs. Economic Costs
Episode 21: Accounting Costs vs. Economic Costs
Published: 2008/10/27
Channel: mjmfoodie
Accounting Lecture 12 - Division of Partnership Profit and Loss
Accounting Lecture 12 - Division of Partnership Profit and Loss
Published: 2010/10/25
Channel: Craig Pence
Governmental & Not-For Profit Accounting: Professor Bora- Lecture # 3 03-17-14
Governmental & Not-For Profit Accounting: Professor Bora- Lecture # 3 03-17-14
Published: 2014/04/11
Channel: Rutgers Accounting Web
FASB Not-For-Profit Grant and Contribution Accounting
FASB Not-For-Profit Grant and Contribution Accounting
Published: 2017/08/25
Channel: FASB - Financial Accounting Standards Board
Cost Revenue Profit And Investment Centers | Accounting | Chegg Tutors
Cost Revenue Profit And Investment Centers | Accounting | Chegg Tutors
Published: 2016/03/15
Channel: Chegg
Elimination of Unrealized Profit on Intercompany Inventory sales advanced accounting CPA exam ch6p1
Elimination of Unrealized Profit on Intercompany Inventory sales advanced accounting CPA exam ch6p1
Published: 2016/10/17
Channel: Farhat's Accounting Lectures
ACCA F3 Accounting for Limited companies, The layout of Profit and Loss
ACCA F3 Accounting for Limited companies, The layout of Profit and Loss
Published: 2017/04/25
Channel: OpenTuition
Basic Accounting : Understanding Profit & Loss Accounts
Basic Accounting : Understanding Profit & Loss Accounts
Published: 2009/07/03
Channel: eHow
Intermediate Accounting 32 Deferred Gross Profit,  Installment Sales
Intermediate Accounting 32 Deferred Gross Profit, Installment Sales
Published: 2012/03/06
Channel: AccountingED
Government & Non-Profit Accounting: Accounting for Fiduciary Activities - Agency & Trust Funds
Government & Non-Profit Accounting: Accounting for Fiduciary Activities - Agency & Trust Funds
Published: 2013/05/23
Channel: Rutgers Accounting Web
Governmental & Not-For Profit Accounting: Professor Bora- Lecture # 4 04-07-14
Governmental & Not-For Profit Accounting: Professor Bora- Lecture # 4 04-07-14
Published: 2014/04/23
Channel: Rutgers Accounting Web
Fire Insurance Claim Problem 2 - Average Gross Profit - Financial Accounting - By Saheb Academy
Fire Insurance Claim Problem 2 - Average Gross Profit - Financial Accounting - By Saheb Academy
Published: 2017/03/28
Channel: Saheb Academy
Non Profit Accounting Overview and IRS Form 990
Non Profit Accounting Overview and IRS Form 990
Published: 2014/05/19
Channel: Serenity Accounting
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WIKIPEDIA ARTICLE

From Wikipedia, the free encyclopedia
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Profit, in accounting, is an income distributed to the owner in a profitable market production process (business). Profit is a measure of profitability which is the owner’s major interest in income formation process of market production. There are several profit measures in common use.

Income formation in market production is always a balance between income generation and income distribution. The income generated is always distributed to the stakeholders of production as economic value within the review period. The profit is the share of income formation the owner is able to keep to himself/herself in the income distribution process. Profit is one of the major sources of economic well-being because it means incomes and opportunities to develop production. The words income, profit and earnings are substitutes in this context.

Measures of profit[edit]

There are several important profit measures in common use. Note that the words earnings, profit and income are used as substitutes in some of these terms.

  • Gross profit equals sales revenue minus cost of goods sold (COGS), thus removing only the part of expenses that can be traced directly to the production or purchase of the goods. Gross profit still includes general (overhead) expenses like R&D, S&M, G&A, also interest expense, taxes and extraordinary items.
  • Earnings before interest, taxes, depreciation, and amortization (EBITDA) equals sales revenue minus cost of goods sold and all expenses except for interest, amortization, depreciation and taxes. It measures the cash earnings that can be used to pay interest and repay the principal. Since the interest is paid before income tax is calculated, the debt holder can ignore taxes.
  • Earnings before interest and taxes (EBIT) or operating profit equals sales revenue minus cost of goods sold and all expenses except for interest and taxes. This is the surplus generated by operations. It is also known as Operating Profit Before Interest and Taxes (OPBIT) or simply Profit Before Interest and Taxes (PBIT).
  • Earnings before taxes (EBT) or net profit before tax equals sales revenue minus cost of goods sold and all expenses except for taxes. It is also known as pre-tax book income (PTBI), net operating income before taxes or simply pre-tax income.
  • Net income or earnings after tax or net profit after tax equals sales revenue after deducting all expenses, including taxes (unless some distinction about the treatment of extraordinary expenses is made). In the US, the term net income is commonly used. Income before extraordinary expenses represents the same but before adjusting for extraordinary items.
  • Retained earnings equals earnings after tax minus payable dividends.

To accountants, economic profit, or EP, is a single-period metric to determine the value created by a company in one period—usually a year. It is earnings after tax less the equity charge, a risk-weighted cost of capital. This is almost identical to the economists' definition of economic profit.

There are analysts who see the benefit in making adjustments to economic profit such as eliminating the effect of amortized goodwill or capitalizing expenditure on brand advertising to show its value over multiple accounting periods. The underlying concept was first introduced by Eugen Schmalenbach, but the commercial application of the concept of adjusted economic profit was by Stern Stewart & Co. which has trade-marked their adjusted economic profit as Economic Value Added (EVA).

Optimum profit is a theoretical measure and denotes the "right" level of profit a business can achieve. In the business, this figure takes account of marketing strategy, market position, and other methods of increasing returns above the competitive rate.

Accounting profits should include economic profits, which are also called economic rents. For instance, a monopoly can have very high economic profits, and those profits might include a rent on some natural resource that a firm owns, whereby that resource cannot be easily duplicated by other firms.

Other terms[edit]

Net sales = gross sales – (customer discounts, returns, and allowances)
Gross profit = net salescost of goods sold
Operating profit = gross profit – total operating expenses
Net profit = operating profit – taxes – interest
Net profit = net salescost of goods soldoperating expense – taxes – interest

See also[edit]

Footnotes[edit]

References[edit]

  • Courbois, R.; Temple, P. (1975). La methode des "Comptes de surplus" et ses applications macroeconomiques. 160 des Collect,INSEE,Serie C (35). p. 100. 
  • Craig, C.; Harris, R. (1973). "Total Productivity Measurement at the Firm Level". Sloan Management Review (Spring 1973): 13–28. 
  • Genesca, G.E.; Grifell, T. E. (1992). "Profits and Total Factor Productivity: A Comparative Analysis". Omega. the International Journal of Management Science. 20 (5/6): 553–568. doi:10.1016/0305-0483(92)90002-O. 
  • Gollop, F.M. (1979). "Accounting for Intermediate Input: The Link Between Sectoral and Aggregate Measures of Productivity Growth". Measurement and Interpretation of Productivity. National Academy of Sciences. 
  • Hulten, C.R. (January 2000). "TOTAL FACTOR PRODUCTIVITY: A SHORT BIOGRAPHY" (PDF). NATIONAL BUREAU OF ECONOMIC RESEARCH. 
  • Hulten, C.R. (September 2009). "GROWTH ACCOUNTING" (PDF). NATIONAL BUREAU OF ECONOMIC RESEARCH. 
  • Jorgenson, D.W.; Ho, M.S.; Samuels, J.D. (2014). Long-term Estimates of U.S. Productivity and Growth (PDF). Tokyo: Third World KLEMS Conference. 
  • Kurosawa, K (1975). "An aggregate index for the analysis of productivity". Omega. 3 (2): 157–168. doi:10.1016/0305-0483(75)90115-2. 
  • Loggerenberg van, B.; Cucchiaro, S. (1982). "Productivity Measurement and the Bottom Line". National Productivity Review. 1 (1): 87–99. doi:10.1002/npr.4040010111. 
  • Pineda, A. (1990). A Multiple Case Study Research to Determine and respond to Management Information Need Using Total-Factor Productivity Measurement (TFPM). Virginia Polytechnic Institute and State University. 
  • Riistama, K.; Jyrkkiö E. (1971). Operatiivinen laskentatoimi (Operative accounting). Weilin + Göös. p. 335. 
  • Saari, S. (2006a). Productivity. Theory and Measurement in Business. Productivity Handbook (In Finnish). MIDO OY. p. 272. 
  • Saari, S. (2011). Production and Productivity as Sources of Well-being. MIDO OY. p. 25. 
  • Saari, S. (2006). Productivity. Theory and Measurement in Business (PDF). Espoo, Finland: European Productivity Conference. 

Further reading and external links[edit]

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