It is clear that every business operate in order to earn profit. In most cases the main goal of a business is making profit. A business may have other goals but if they do not make profit in the business then they will have to end the business. In this essay I will analyse what is the meaning of profit and how it is obtained.
What is business profit? The easiest way to explain profit is the income a company earned in a certain period of time. There are two types of profit namely gross profit and net profit. Gross profit is not the actual profit of a business and it is found by deducting the cost of goods sold from net sales. Thus, net profit is considered as the actual profit retained by a business and it is actually the difference between the revenue earned by the company and the expenses incurred. For example, on Oct 1 a company provided legal services for a customer and received $2000 cash and on Oct 31 the company paid $500 for the rent of the premises, if we are asked to calculate the net profit for the month you should find the difference between the cash received and the rent paid, i.e., $2000 - $500, which gives us the value of the net profit of $1500. We have to find the profit in order to see whether a business is profitable or not. Net profit will increase the equity of the business. It is recorded in the financial statement which summarizes the overall performance of a business during a particular financial period.
Now, we shall analyse what is actually considered as revenue to a company. According to Cunningham, Nikolai and Bazley (2000: 132) “Revenues are the prices a company charged to its customers for goods or services it provided during a specific time period”. For example, a lawyer firm provided legal services to its customer on 1 June and received $5000 cash. In the example above the $5000 is the revenue earned by the company and it is called the service revenue. A company selling furniture sold a dra