2.2 Profit Determination Equation Profit is the amount whereby it is calculated with the formula, revenue minus expenses in a business (Appendix 3). The owner will obtain profit when the total revenue exceeded the total of expenses. What is a revenue? Revenue is an amount that the owner earned during the business period. For example, when the owner rents out one of his or her shoplot to others for business purposes, the owner will receive rental fee from them as a revenue which means profit. This means that the owner will obtain and earn income from them who pays the rental fee .
In contrast, expenses are costs that the owner have spent for his or her business. For example, staff’s salaries are expenses in a business. Why are staff’s salaries being categorized as expenses? This is …show more content…
This cycle involves several stages or steps over a particular period of time.An accounting cycle shows the steps to collect and record business information systematically. Therefore, financial reports or statements can be presented to the …show more content…
For examples, lenders such as banks and finance companies will look into the accounting information that is provided and would decide whether to lend and how much to lend and whether an organization is able to repay its loan with interest. Stockholders are also known as an investor is an external user. The investors have the rights to know how a company is managing their investment through accounting information. Example, as aforementioned that external users are not directly involved in running an organization.They have limited access to an organization’s information. Thus, external users need reliable, relevant and comparable information in order to make their business
In contrast, expenses are costs that the owner have spent for his or her business. For example, staff’s salaries are expenses in a business. Why are staff’s salaries being categorized as expenses? This is …show more content…
This cycle involves several stages or steps over a particular period of time.An accounting cycle shows the steps to collect and record business information systematically. Therefore, financial reports or statements can be presented to the …show more content…
For examples, lenders such as banks and finance companies will look into the accounting information that is provided and would decide whether to lend and how much to lend and whether an organization is able to repay its loan with interest. Stockholders are also known as an investor is an external user. The investors have the rights to know how a company is managing their investment through accounting information. Example, as aforementioned that external users are not directly involved in running an organization.They have limited access to an organization’s information. Thus, external users need reliable, relevant and comparable information in order to make their business