How To Understand "Revenue Expense=Profit"

The relationship between income, expense and profit is generally defined as "profit is the final financial result of an enterprise's production and operation activities within a certain period of time. It is the difference between income and expense after matching and offsetting, and is the final element reflecting the operating results." How to understand "income expense=profit"? It is obviously not comprehensive to simply understand that operating income minus operating expenses equals operating profit. To understand this equation, we should learn from income. Start with the concept of expense and profit. 1、 Revenue According to the Accounting Standards for Business Enterprises, "income is the operating income realized by an enterprise in its business operations such as selling goods or providing services, which includes basic business income and other business income." The author believes that the concept of "income" here is relatively broad, and it should include all income from operating and non operating activities. But in real economic life, people tend to narrow the concept of "income". Both the broad and narrow concept of income have the following two obvious characteristics: first, income is the increase of net assets of enterprises. Because the realization of revenue is often reflected in the increase of assets or the decrease of liabilities, which will inevitably lead to the increase of net assets of enterprises. However, the increase in the net assets of the enterprise does not necessarily result in income. For example, the increase in investment and donations received by the owners are also reflected in the increase in the net assets of the enterprise, but the enterprise does not obtain income as a result. Second, the income mainly comes from the main business activities in the production and operation process, such as selling goods and providing labor services, but it is not the only source. For example, leasing fixed assets will also obtain corresponding income. 2、 Fees In the Accounting Standards for Business Enterprises of China, the definition of expenses is expressed as: expenses are various expenses incurred in the production and operation of enterprises. Direct materials, direct labor, commodity purchase prices and other direct expenses incurred by the enterprise directly for the production of goods and the provision of labor services are directly included in the production and operation costs; All indirect expenses incurred by an enterprise for the production of goods and the provision of services shall be allocated and included in the production and operation costs according to certain standards. The administrative expenses and financial expenses incurred by the administrative department of the enterprise for organizing and managing production and operation activities, the purchase expenses and sales expenses incurred for selling and providing labor services shall be directly included in the current profits and losses as period expenses. It can be seen that the cost only refers to the cost associated with the provision of goods or services, which is a narrow concept. In a broad sense, expenses include various expenses and losses, such as non operating expenses. No matter whether expenses include losses or not, they should have the following characteristics: First, expenses will eventually lead to the reduction of enterprise resources, which is specifically reflected in the capital expenditure of enterprises. In this sense, expense is essentially a kind of resource outflow from the enterprise, which is opposite to the income generated by resource inflow into the enterprise. It can also be understood as the consumption of assets, which is aimed at obtaining income and more assets. Second, expenses will eventually reduce the owner's equity of the enterprise. Generally speaking, the owner's equity of enterprises will increase with the growth of income; On the contrary, the increase of expenses will reduce the owner's equity. However, the decrease of owner's equity is not necessarily included in the expenses. For example, the debt paying expenses of enterprises and the distribution of profits to investors obviously reduce the owner's equity, but cannot be included in the expenses. 3、 Profit According to the Accounting Standards for Business Enterprises, profit is the operating result of an enterprise for a certain period, which includes operating profit, net investment income and net non operating income and expenditure. Operating profit is the balance of operating revenue minus operating costs, period expenses, various turnover taxes and surcharges; Net investment income is the balance of the enterprise's foreign investment income minus investment losses; The net amount of non operating income and expenditure refers to the balance of various non operating income not directly related to the production and operation of the enterprise after deducting the non operating expenditure. From the concept of profit, we can see that the income in the profit includes various incomes such as operating income, investment income, supplementary income and non operating income, while various costs and expenses also include various expenses such as operating costs, period expenses and non operating expenses. 4、 Income expense=profit Profit is the difference between various incomes and fees. Here, the income is in a broad sense, including operating income, subsidy income, investment income and non operating income; The cost here is a generalized cost, which includes various costs and losses. The matching of income and expense should include the following three ways: 1. Direct mixing. It is to directly match the expenses that have a direct causal relationship with a specific income with the corresponding income to determine the matching method of profits. For example, direct materials and direct labor are directly included in the cost of the finished product, and the cost of sales is directly transferred into the cost of realized sales revenue. 2. Indirect matching. It is to allocate the expenses consumed by several objects to each specific object according to a certain proportion or coefficient, so that they can be linked with the corresponding financial results. For example, the manufacturing expenses are allocated by indirect matching. 3. Period matching. For costs that are not causal related to any specific product or service, because they are only related to a certain period, these costs are considered to be related to all income realized during the period. It needs to be matched with the income of the period, such as administrative expenses, sales expenses, financial expenses, non operating expenses, etc. Some sales expenses may have a causal relationship with specific sales revenue, but in most cases, sales expenses are difficult to relate to specific sales revenue, and sales expenses incurred in the current period are generally related to current sales revenue. There are few cases of intertemporal processing. For the sake of accounting convenience, they are also regarded as period expenses. According to the above three matching methods, matching the income and expenses of an enterprise in a certain period is profit, that is, income (in broad sense) - expense (in broad sense)=profit.