Articles

Division of costs to various categories

Costs can be divided into different categories according to their drivers or behavior. The main reason for the costs breakdown is their understanding and subsequent optimization / reduction.   According to traceability to cost object (most often product or service): direct costs direc

Difference between expense and expenditure

Expense is not the same term as expenditure as well as income is not the same as receipt.   Expenditures (and receipts) are associated with cash movements and as such affect the entity´s cash flow. Expenses represent consumption of inputs (material, labor etc.) in order to generate re

Profit

Profit is generally defined as a difference between income and expenses. It is one of the most common business objectives, a kind of reward for risk and the key measure of success in corporate life. However, there are many different forms of profit which greatly limits its comparability. Above

Accounting profit

Accounting profit = income - explicit costs It is a term defined by accounting standards, rules or national legislation used for the purpose of preparing financial statements or possibly tax returns. The difference between economic and accounting profit is described in this article. Accounting pr

Forms of accounting profit used in practice

Above in other articles were mentioned forms of profit that are somehow clearly defined. Nevertheless, the economic world is fond of other indicators and some of them can be usually found in the reporting system of nearly any company. They are often not based on any GAAP (not mentioned even in IFRS)

Reporting the costs of inventory in the financial statements

Costs are usually debited as an expense in the entity´s profit and loss statement. But it is not often the case for costs incurred in the inventory production process. Direct costs, usually together with allocated production indirect costs (production overheads), form the value of various form

Difference between profit and cash-flow

Profit is usually not equal to cash flow because profit is defined as the difference between income and expenses, while cash flow as the difference between receipts and expenditures. Accounting profit is the final line in the income statement, while cash flow is the final line in the statement of c

Conditions for dividend payment

If the company wants to pay a dividend, it must at least: meet legal requirements arising from the statutory allocation to the reserve or other funds have a base to pay the dividend – mostly profit or retained earnings meet other legal requirements, for example that General Meeting took p

Distinction between economic and accounting profit

The general definition is valid for both economic and accounting profit: income - expenses But the terms differ in: what is included in the formula: economic profit: explicit and implicit costs accounting profit: only explicit costs what defines them: economic profit: basic econo

Tax profit

Tax profit is profit serving as the basis for calculating income tax under the provisions applicable tax law. Tax profit calculation is usually based on the accounting profit that is transformed to tax base.

Financial accounting

The purpose of financial accounting is to present true and fair information about financial position, financial performance and cash-flow of the entity for the external stakeholders such as shareholders, investors, creditors or government. Financial accounting looks mainly into the history and is (m

Costing methods according to the cost types included

Costing methods differ also in the cost types that will be included in the value of inventory (costs of goods sold) and which shall be booked directly to the statement of profit and loss as period costs.   Cost accounting methods include: Full costing or full production costing methods, e

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