2.5 Profit
- Amount by which income exceeds the expenses of the business
- Gross Profit – amount by which sales exceeds cost of sales
- Operating Profit – amount after deducting operating expenses (day-to-day expenses) from Gross Profit
- Net Profit – after all other expenses deducted except Tax and Interest
Definition
Amount by which income exceeds the expenses of the business
2.5.1 Income
- Increases in economic benefits during an accounting period
- Related to an increase in an asset or a decrease in a liability, resulting in an increase in owner’s equity
- Other than contributions from equity participants (owners)
- Increase in economic benefits related to an increase in an asset or a decrease in a liability
- Can be measured reliably
Definition
Increases in economic benefits during an accounting period related to an increase in an asset or a decrease in a liability, resulting in an increase in owner’s equity, other than contributions from equity participants (owners)
2.5.2 Expenses
- Decreases in economic benefits during an accounting period
- Due to decreases in assets or increases in liabilities, resulting in a decrease in owner’s equity, other than distributions to equity participants
- Decrease in economic benefits related to an increase in an asset or a decrease in a liability has arisen
- Can be measured reliably
Definition
A decrease in economic benefits during an accounting period due to a decrease in assets or increases in liabilities, resulting in a decrease in owner’s equity, other than distributions to equity participants (owners)
2.5.3 Cost of Sales
Tasks
Watch the following video for a detailed explanation regarding the various elements of the accounting equation as well as the financial statements:
