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Revenue 1
Cost of goods sold 4
Profit (accounting) 7
Gross margin 9
Markup (business) 11
Gross profit 13
References
Article Sources and Contributors 14
Image Sources, Licenses and Contributors 15
Article Licenses
License 16
Revenue 1
Revenue
Accountancy
Key concepts
Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard
practices · Cash and accrual basis · GAAP / IFRS
Financial statements
Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings
Auditing
Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors
Fields of accounting
In business, revenue or revenues is income that a company receives from its normal business activities, usually
from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is
referred to as turnover. Some companies receive revenue from interest, dividends or royalties paid to them by other
companies.[1] Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit,
received during a period of time, as in "Last year, Company X had revenue of $32 million."
Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, revenue is
often referred to as the "top line" due to its position on the income statement at the very top. This is to be contrasted
with the "bottom line" which denotes net income.[2]
For non-profit organizations, annual revenue may be referred to as gross receipts.[3] This revenue includes donations
from individuals and corporations, support from government agencies, income from activities related to the
organization's mission, and income from fundraising activities, membership dues, and financial investments such as
stock shares in companies.[4] For government, revenue includes gross proceeds from income taxes on companies and
individuals, excise duties, customs duties, other taxes, sales of goods and services, dividends and interest.[5]
In general usage, revenue is income received by an organization in the form of cash or cash equivalents. Sales
revenue or revenues is income received from selling goods or services over a period of time. Tax revenue is income
that a government receives from taxpayers.
In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard
accounting practice or the rules established by a government or government agency. Two common accounting
methods, cash basis accounting and accrual basis accounting, do not use the same process for measuring revenue.
Corporations that offer shares for sale to the public are usually required by law to report revenue based on generally
accepted accounting principles or International Financial Reporting Standards.
In a double-entry bookkeeping system, revenue accounts are general ledger accounts that are summarized
periodically under the heading Revenue or Revenues on an income statement. Revenue account names describe the
type of revenue, such as "Repair service revenue", "Rent revenue earned" or "Sales".[6]
Revenue 2
Business revenue
Business revenue is income from activities that are ordinary for a particular corporation, company, partnership, or
sole-proprietorship. For some businesses, such as manufacturing and/or grocery, most revenue is from the sale of
goods. Service businesses such as law firms and barber shops receive most of their revenue from rendering services.
Lending businesses such as car rentals and banks receive most of their revenue from fees and interest generated by
lending assets to other organizations or individuals.
Revenues from a business's primary activities are reported as sales, sales revenue or net sales. This excludes
product returns and discounts for early payment of invoices. Most businesses also have revenue that is incidental to
the business's primary activities, such as interest earned on deposits in a demand account. This is included in revenue
but not included in net sales.[7] Sales revenue does not include sales tax collected by the business.
Other revenue (a.k.a. non-operating revenue) is revenue from peripheral (non-core) operations. For example, a
company that manufactures and sells automobiles would record the revenue from the sale of an automobile as
"regular" revenue. If that same company also rented a portion of one of its buildings, it would record that revenue as
“other revenue” and disclose it separately on its income statement to show that it is from something other than its
core operations.
A public company reports its total annual revenues based on its fiscal year. Public companies also report quarterly
revenues.
Internally, companies break revenue down by operating segment, geographic region, and product line.
Government revenue
Government revenue includes all amounts of money received from sources outside the government entity. Large
governments usually have an agency or department responsible for collecting government revenue from companies
and individuals.[8]
Government revenue may also include Reserve Bank currency which is printed.This is recorded as an advance to the
retail bank together with a corresponding currency in circulation expense entry.The income derives from the Official
Cash rate payable by the retail banks for instruments such as 90 day bills.There is a question as to whether using
generic business based accounting standards can give a fair and accurate picture of government accounts in that with
a monetary policy statement to the reserve bank directing a positive inflation rate the expense provision for the return
of currency to the reserve bank is largely symbolic in that to totally cancel the currency in circulation provision all
currency would have to be returned to the reserve bank and cancelled.
See also
• List of companies by revenue
• Micro-revenue
References
[1] Williams, Jan R.; Susan F. Haka, Mark S. Bettner, Joseph V. Carcello (2008). Financial & Managerial Accounting. McGraw-Hill Irwin.
pp. 199. ISBN 9780072996500. This definition is based on IAS 18.
[2] Williams, p.51
[3] 2006 Instructions for Form 990 and Form 990-EZ (http:/ / www. irs. gov/ pub/ irs-pdf/ i990-ez. pdf), US Department of the Treasury, p. 22
[4] Financial Accounting for NPOs (http:/ / www. muridae. com/ nporegulation/ accounting. html#revenue)
[5] 2005-06 Australian Government Budget (http:/ / www. budget. gov. au/ 2005-06/ fbo/ html/ 02_part_1-02. htm)
[6] Williams, p. 196
[7] Williams, p. 647
[8] HM Revenue & Customs (United Kingdom) (http:/ / www. hmrc. gov. uk/ menus/ aboutmenu. htm) Office of the Revenue Commissioners
(Ireland) (http:/ / www. revenue. ie/ ) Internal Revenue Service bureau, Department of the Treasury (United States) (http:/ / www. irs. gov/ irs/
article/ 0,,id=98141,00. html) Missouri Department of Revenue (http:/ / dor. mo. gov/ ) Louisiana Department of Revenue (http:/ / www. rev.
state. la. us/ sections/ aboutus/ default. aspx)
Cost of goods sold 4
Key concepts
Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard
practices · Cash and accrual basis · GAAP / IFRS
Financial statements
Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings
Auditing
Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors
Fields of accounting
In financial accounting, cost of goods sold (COGS) includes the direct costs attributable to the production of the
goods sold by a company. This amount includes the materials cost used in creating the goods along with the direct
labour costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs.
COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin.
COGS is the costs that go into creating the products that a company sells; therefore, the only costs included in the
measure are those that are directly tied to the production of the products. For example, the COGS for an automaker
would include the material costs for the parts that go into making the car along with the labor costs used to put the
car together. The cost of sending the cars to dealerships and the cost of the labor used to sell the car would be
excluded.
The accounts included in the COGS calculation will differ from one type of business to another.
The cost of goods attributed to a company's products is expensed as the company sells these goods. There are several
ways to calculate COGS but one of the basic ways is to start with the beginning inventory for the period and add the
total amount of purchases made during the period, and then deducting the ending inventory. This calculation gives
the total amount of inventory (the cost of this inventory) sold by the company during the period. Therefore, if a
company starts with $10 million in inventory, makes $2m in purchases and ends the period with $9m in inventory,
the company's cost of goods for the period would be $3m ($10m + $2m - $9m).
Subtracting the cost of goods sold from the amount billed when selling the goods (sales revenue) produces the gross
profit on the goods.
The net income, what most people understand as the business' income or profit, is determined by subtracting the cost
of goods sold and the indirect expenses from the sales revenue.
Cost of goods sold 5
Accounting method
{The method of calculating Cost of goods sold is: Opening stock + Purchase of goods - Closing Stock}
This table makes it easy to grasp the concept of cost of goods sold for a merchandising business.
Make a note that the sum of Beginning Inventory and Cost of Goods Purchased is equal to Goods Available for
Sale, and so is the sum of Cost of Goods Sold and Ending Inventory.
Cost of goods purchased is calculated as follows. Purchases minus Purchases returns and allowances and minus
Purchases discounts gives us Net Purchases. Net Purchases plus Freight-In gives us Cost of Goods Purchased.
Cost of Goods Sold is calculated by subtracting Ending Inventory from Goods Available for Sale.
The revenue from merchandise sold must be matched with the COGS. Cost of sales or cost of goods sold is the
identification of the cost of those items sold in the most recent accounting period. It can be done by specific
identification, taking inventory, or different methods using estimates such as the "retail" method.
COGS is also the determining factor in arriving at gross profit and in a manufacturing business is determined under
the periodic method as follows:
Sales--------------------------------- $100,000
Cost of Goods Sold
Inventory 01/01/03-- $ 5,000
Purchases------------ 45,000
Direct Labor--------- 30,000
_______
80,000
Less: Inventory 12/31/03----- 10,000
_______
To determine the net profit, one would then compute the indirect expenses such as office expenses, light, heat, etc.
Determining the cost of goods sold is the first step in arriving at the net profit.
If the COGS is too high, then the gross profit will not support the indirect expenses and the result will be a loss for
the accounting period.
Cost of goods sold 6
See also
• Income statement
• List of business and finance abbreviations
References
[1] Corbett, Thomas. Throughput Accounting. North River Press.
Accounting Principles; Wild, J.; Larson,K.; Chiappetta,B.; 18th Edition:2007. McGraw-Hill Irwin; New York, NY
10020
External links
• Cost of Goods Sold (http://www.accountingcoach.com/online-accounting-course/12Xpg01.html) Explanation
and examples for Inventory and Cost of Goods Sold.
• Investopedia (http://www.investopedia.com/terms/c/cogs.asp) Definition of COGS.
Profit (accounting) 7
Profit (accounting)
Accountancy
Key concepts
Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard
practices · Cash and accrual basis · GAAP / IFRS
Financial statements
Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings
Auditing
Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors
Fields of accounting
In accounting, profit is the difference between price and the costs of bringing to market whatever it is that is
accounted as an enterprise (whether by harvest, extraction, manufacture, or purchase) in terms of the component
costs of delivered goods and/or services and any operating or other expenses.
Definition
There are several important profit measures in common use which will be explained in the following. Note that the
words earnings, profit and income are used as substitutes in some of these terms (also depending on US vs. UK
usage), thus inflating the number of profit measures.
Gross profit equals sales revenue less Cost of Goods Sold (COGS), thus removing only the part of expenses that can
be traced directly to the production of the goods. Gross profit still includes general (overhead) expenses like R&D,
S&M, G&A, also interest expense, taxes and extraordinary items.
Operating profit equals gross profit less all operating expenses. This is the surplus generated by operations. It is
also known as Earnings Before Interest and Taxes EBIT, Operating Profit Before Interest and Taxes OPBIT or
simply Profit Before Interest and Taxes PBIT.
(Net) Profit Before Tax PBT equals operating profit less interest expense (but before taxes). It is also known as
Earnings Before Tax EBT, Net operating income before taxes or simply Pretax Income.
Net profit equals Profit After Tax (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 extroardinary items.
Net income less dividends becomes retained earnings.
There are several additional important profit measures, notably EBITDA and NOPAT.
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 the net profit after tax less the equity charge, a risk-weighted cost of capital. This is
almost identical to the economist's definition of economic profit.
There are commentators who see 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
Profit (accounting) 8
periods. The underlying concept was first introduced by 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 EVA or Economic Value Added.
Some economists define further types of profit:
• Abnormal profit (or supernormal profit)
• Subnormal profit
• monopoly profit (super profit)
Optimum Profit - This is the "right amount" of profit a business can achieve. In 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 firm owns,
where that resource cannot be easily duplicated by other firms.
See also
• Gross profit
• Net profit
• Rate of return
• Return on assets
• Return on equity
• Rate of profit
References
• Pyle, William W., and Kermit D. Larson (1981). Fundamental Accounting Principles. Homewood, Illinois:
Richard D. Irwin. ISBN 0256023867
External links
• Profit and Loss [1], Ludwig von Mises (1951)
• Measuring the Long-Run Profitability of the Firm [2], Salmi - Virtanen (1997)
References
[1] http:/ / mises. org/ story/ 2321
[2] http:/ / lipas. uwasa. fi/ ~ts/ smuc/ smuc. html
Gross margin 9
Gross margin
Gross margin, Gross profit margin or Gross Profit Rate is the difference between the sales and the production
costs (excluding the overheads). Gross margin can be defined as the amount of contribution to the business
enterprise, after paying for direct-fixed and direct-variable unit costs, required to cover overheads (fixed
commitments) and provide a buffer for unknown items. It expresses the relationship between gross profit and sales
revenue.
It can be expressed in absolute terms:
Gross margin= Net Sales - Cost of Sales+ annual sales return
or as the ratio of gross profit to sales revenue, usually in the form of a percentage:
Cost of Sales includes variable costs and fixed costs directly linked to the sale, such as material and labor. It does not
include indirect fixed costs like office expenses, rent, administrative costs, etc.
Higher gross margins for a manufacturer reflect greater efficiency in turning raw materials into income. For a retailer
it will be their markup over wholesale. Larger gross margins are generally good for companies, with the exception of
discount retailers. They need to show that operations efficiency and financing allows them to operate with tiny
margins.
Markup
Markup can be expressed either as a decimal or as a percentage, but is used as a multiplier. Here is an example:
If a product costs the company $100 to make and they wish to make a 50% profit on the sale of the product (sale
dollars) they would have to use a markup of 100%. To calculate the price to the customer, you simply take the
product cost of $100 and multiply it by (1 + the markup), eg: 1+1=2, arriving at the selling price of $200.
Gross margin
Most people find it easier to work with Gross Margin because it directly tells you how many of your sale dollars are
profit. In reference to the two examples above:
The $200 price that includes a 100% markup represents a 50% gross margin. As you can see, gross margin is just the
percentage of the selling price that is profit. In this case 50% of our price is profit, or $100.
Gross margin 10
In the more complex example of selling price $339, a markup of 66% represents approximately a 40% gross margin.
This means that 40% of the $339 is profit. Again, gross margin is just the direct percentage of profit in your sale
price.
In accounting, the gross margin refers to sales minus cost of goods sold. It is not necessarily profit as other expenses
such as sales, administrative, and financial must be deducted.
Selling Price
For example, if your product costs $100 and the required gross margin is 40%, then
Selling Price
Markup (business)
Markup is the difference between the cost of a good or service and its selling price.[1] A markup is added on to the
total cost incurred by the producer of a good or service in order to create a profit. The total cost reflects the total
amount of both fixed and variable expenses to produce and distribute a product.[2] Markup can be expressed as a
fixed amount or as a percentage of the total cost or selling price.[1] Different methods exist in determining the
markup of a product.
Initial markup
The initial markup is the average markup required on all products to cover the cost of all items, incidental expenses,
and to obtain a reasonable profit. The initial dollar markup is expressed as a percentage. Initial Dollar Markup =
(Operating Expenses + Price Reductions + Profit) / (Forecasted Net Sales + Price Reductions)[1]
Example:
• Forecasted Sales = $380
• Operating Expenses = $140
• Anticipated Price Reductions = $24
• Expected Profit = $38
Thus the initial dollar markup on the product should be 50%. Price reductions, or markdowns, are reductions in the
retail selling price when the item cannot be sold at its intended price and erode into profit. Operating expenses are
costs incurred in addition to the total product cost and can vary depending on the product and service being sold. In
reviewing operating expenses, annualized figures should be used since any individual month may not properly
reflect the expenses incurred over a full year.
Initial pricing of a product is an important step in merchandising. The Keystone Method doubles cost of an
individual product to arrive at its selling price (2 x total product cost ). The Dollar Markup Method takes into
account the total amount of operating expenses and desired profit. These are then broke down on a per product unit
basis, which is then added on to the total product cost. This addition onto the total cost is the dollar markup.[3] This
dollar markup is either expressed as a percentage of the total cost per unit or the selling price.
Price determination
Markup as a percentage
• Cost x (Markup + 1) = Sale price
or solved for Markup = (Sale price / Cost) - 1
• Assume the sale price is $1.99 and the cost is $1.40
Markup = ($1.99 / 1.40) - 1 = 42%
• To convert from markup to profit margin:
Sale price - Cost = Sale price x Profit margin
Margin = 1 - (1 / (Markup + 1))
Margin = 1 - (1 / (1 + .42)) = 29.5%
See also
• Marketing
• Pricing
• Cost-plus pricing
References
[1] Vickers, Frank (2005). The Dynamic Small Business Manager. Lulu.com. ISBN 9781411652842.
[2] Pradhan, Swapna (2007). Retailing Management. Tata McGraw-Hill. ISBN 9780070620209.
[3] Arena, Barbara (2001). The Complete Idiot's Guide to Making Money with Your Hobby. Alpha Books. pp. 220. ISBN 9780028638256.
Gross profit 13
Gross profit
Accountancy
Key concepts
Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard
practices · Cash and accrual basis · GAAP / IFRS
Financial statements
Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings
Auditing
Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors
Fields of accounting
In accounting, gross profit or sales profit is the difference between revenue and the cost of making a product or
providing a service, before deducting overhead, payroll, taxation, and interest payments. Note that this is different
from operating profit (earnings before interest and taxes).
Net sales are calculated:
Net sales = Gross sales – Sales returns and allowances.
Gross profit is found by deducting the cost of goods sold:
Gross profit = Net sales – Cost of goods sold.
Gross profit should not be confused with net income:
Net income = Gross profit – Total operating expenses.
Cost of goods sold is calculated differently for merchandising business than for a manufacturer.
See also
• EBITDA
• Profit margin, the ratio of net income to net sales
• Gross margin, the difference between the sales and the production costs
Article Sources and Contributors 14
Cost of goods sold Source: http://en.wikipedia.org/w/index.php?oldid=334666410 Contributors: Aegis Maelstrom, Agent007bm, Ahoerstemeier, Alanraywiki, Alex Rio Brazil, Angela,
Badanedwa, Bluemoose, Bobianite, Bombastus, Carl Steinbeißer, Cdc, Cecropia, Comp25, Conce, Dewilson526, Eeekster, Ehn, Far Beyond, Flewis, Goodralph, Gpdunlay, Grandia01, Green
Squares, Group2luchs, Iridescent, Jd147703, Jwpurple, Kcordina, Krupo, Laoris, Mrdthree, Muchness, Nehrams2020, NeilN, NilssonDenver, Petershank, Renata3, Sbroadwe, Shadowolf, Shyam,
SirIsaacBrock, Svetovid, TheParanoidOne, TheoClarke, Vancouverguy, Ws4ever, 50 anonymous edits
Profit (accounting) Source: http://en.wikipedia.org/w/index.php?oldid=335155384 Contributors: Gary King, Hakseng, Julesd, Landroni, LilHelpa, MrOllie, RJN, Seomad2010, Versageek,
维尼尔基, 11 anonymous edits
Gross margin Source: http://en.wikipedia.org/w/index.php?oldid=336607904 Contributors: Ahsq, Ansgarjohn, Arthena, Bobo192, Calor, Dangelon, Dnieweg, DocendoDiscimus, ESkog,
Eeekster, ErikNilsson, Feco, Fredi@wiki, HamburgerRadio, Hans G. Oberlack, Hu12, Infilms, Ino5hiro, Javert, Jemappel1, Ktwombley, Nbarth, NuclearWinner, Octopus-Hands, Oroso, Pg133,
Qwertythecat, Renata3, Rhobite, Rufous, Sebross, Shyam, SirIsaacBrock, Snoyes, Staffwaterboy, Surajmohandas, TWCarlson, Tesseran, TheParanoidOne, TheoClarke, Thingg, Thue,
Tsotnekutalia, Underpants, WipedEven, Yudengdeng, 149 anonymous edits
Markup (business) Source: http://en.wikipedia.org/w/index.php?oldid=330288520 Contributors: Awayls, Babij, Barkeep, CINCABF, Dcm684, Ehn, Fabrictramp, Fireswordfight, HCHR,
Hu12, Hypopotamus, James084, Joerite, JubalHarshaw, Kuru, LutzL, Maurreen, Maximus1973, Michael Devore, Michael Hardy, Murgh, Mydogategodshat, Mygolfretailguru, Pearle, Professor
marginalia, RexNL, RobertRFreeman, Ruakh, SoniaZ, Sun2009, 57 anonymous edits
Gross profit Source: http://en.wikipedia.org/w/index.php?oldid=337541247 Contributors: 2004-12-29T22:45Z, Alansohn, Auminski, Bettia, Billda, DocendoDiscimus, EhsanQ, Ezrakilty,
Famspear, Frumphammer, Hectorthebat, Ideal gas equation, JPD, Lerty, Luc., LuckyWizard, Lvova, Pan1987, RJN, Shawnc, Shyam, SirIsaacBrock, Smalljim, Snigbrook, SpuriousQ, Svetovid,
Thatguyflint, TheoClarke, Tiggerjay, Wikien2009, Yahel Guhan, 46 anonymous edits
Image Sources, Licenses and Contributors 15
License
Creative Commons Attribution-Share Alike 3.0 Unported
http:/ / creativecommons. org/ licenses/ by-sa/ 3. 0/